Modeling Multi-Period Corporate Defaults: Macro, Contagion And Frailty Effects In Default Clustering

摘要

This dissertation explores various channels for default clustering. The probability of extreme default losses in U.S. corporate portfolio is much greater than that estimated from model containing only observed macroeconomic variables. The additional sources of default clustering are provided by direct contagion and latent frailty factor. We build a top-down proportional hazard rate model with self-exciting specification. We develop efficient methods of moment for parameter estimation and goodness-of-fit tests for the default counting process. Our estimates are based on U.S. public firms between 1970 and 2008. We find strong evidence that contagion and frailty are equally important in capturing large portfolio losses. Our empirical findings can be used by banks and credit portfolio managers for economic capital calculations and dynamic risk management.