## Modelling Dependent Defaults (2000)

Venue: | RISK |

Citations: | 31 - 6 self |

### BibTeX

@TECHREPORT{Frey00modellingdependent,

author = {Rüdiger Frey and Alexander J. McNeil},

title = {Modelling Dependent Defaults},

institution = {RISK},

year = {2000}

}

### Years of Citing Articles

### OpenURL

### Abstract

We consider the modelling of dependent defaults using latent variable models (the approach that underlies KMV and CreditMetrics) and mixture models (the approach underlying CreditRisk+). We explore the role of copulas in the latent variable framework and present results from a simulation study showing that even for fixed asset correlation assumptions concerning the dependence of the latent variables can have a large effect on the distribution of credit losses. We explore the effect of the tail of the mixing-distribution for the tail of the credit-loss distributions. Finally, we discuss the relation between latent variable models and mixture models and provide general conditions under which these models can be mapped into each other. Our contribution can be viewed as an analysis of the model risk associated with the modelling of dependence between credit losses.