A Markov Copula Model of Portfolio Credit Risk with Stochastic Intensities and Random Recoveries

Tomasz R. Bielecki, Areski Cousin, Stéphane Crépey, Alexander Herbertsson
2012 Social Science Research Network  
In [4] , the authors introduced a Markov copula model of portfolio credit risk. This model solves the top-down versus bottom-up puzzle in achieving efficient joint calibration to single-name CDS and to multi-name CDO tranches data. In [4], we studied a general model, that allows for stochastic default intensities and for random recoveries, and we conducted empirical study of our model using both deterministic and stochastic default intensities, as well as deterministic and random recoveries
more » ... ndom recoveries only. Since, in case of some "badly behaved" data sets a satisfactory calibration accuracy can only be achieved through the use of random recoveries, and, since for important applications, such as CVA computations for credit derivatives, the use of stochastic intensities is advocated by practitioners, efficient implementation of our model that would account for these * The research of T.R.
doi:10.2139/ssrn.2159279 fatcat:pf5urdxnenaqdjc7jzn35rzzui