A mathematical model for multi-name credit based on community flocking

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We present a new mathematical model for multi-name credit that employs stochastic flocking. Flocking mechanisms have been used in a variety of models of biological, sociological and physical aggregation phenomena. As a direct application of a flocking mechanism, we introduce a credit risk model based on community flocking for a credit worthiness index. Correlations between different credit worthiness indices are explained in terms of communication rates and coupling strengths from the flocking system. Based on the flocking model, we compute credit curves for individual names and default time distributions. We also apply the proposed model to the pricing of credit derivatives such as credit default swaps and collateralized debt obligations.
Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Issue Date
2015-05
Language
English
Article Type
Article
Keywords

RISK; EMERGENCE

Citation

QUANTITATIVE FINANCE, v.15, no.5, pp.841 - 851

ISSN
1469-7688
DOI
10.1080/14697688.2012.744085
URI
http://hdl.handle.net/10203/198428
Appears in Collection
IE-Journal Papers(저널논문)
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