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The Law of Large Numbers for self-exciting correlated defaults

By Jakša Cvitanić, Jin Ma and Jianfeng Zhang

Abstract

We consider a model of correlated defaults in which the default times of multiple entities depend not\ud only on common and specific factors, but also on the extent of past defaults in the market, via the average\ud loss process, including the average number of defaults as a special case. The paper characterizes the average\ud loss process when the number of entities becomes large, showing that under some monotonicity conditions\ud the limiting average loss process can be determined by a fixed point problem.We also show that the Law of\ud Large Numbers holds under certain compatibility conditions

Publisher: Elsevier B.V.
Year: 2012
OAI identifier: oai:authors.library.caltech.edu:33126
Provided by: Caltech Authors
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