Application of multivariate default process based on bayesian copula

Application of multivariate default process based on bayesian copula

One of the main problems in credit risk management is the correlated default. Default dependencies among issuers in a large portfolio play an important role in the quantification of a portfolio’s credit. This Paper develops a methodology to assess alternative specifications of the joint distribution of default risk. The study is based on a data set more than of 200 active corporations in Tehran stock exchange. We undertake an empirical examination of the joint stochastic process of default risk over the period 1999-2011. After using the clustering method for sorting the data in six rating classes, thereby we try to study dependency structure of default processes. The model is based on a jump diffusion process for the risk factors, i.e. for the company assets. We also include correlations between the default of companies. We study a simplified version of our model analytic Furthermore, we perform numerical simulations for the full model. W uss in details the links between default correlation based on jumps process moreover how these phenomenon depend on the available information. This paper is to introduce a new methodology for credit risk management. based on Bayesian copulae. One of the main problems related to credit risk management is understanding the complex dependence structure of the associated variables and Moreover lack of data. This suggests the use of Bayesian models, computed via simulation methods and in particular. Markov Chain Monte Carlo. This methodology combines the use of copulae and Bayesi models. This allows is to split the joint multivariate probability distribution of a random vector into individual components characterized by univariate marginals. Thus, copula functions embody all the information about the correlation between variables and provide a useful technique for modeling the dependency of a high number of marginals. Finally, we try to compare conclusion of Bayesian copulae with classic copulae.