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

作者：Ha Seung Yeal; Kim Kyoung Kuk; Lee Kiseop^*

来源：Quantitative Finance, 2015, 15(5): 841-851.

DOI：10.1080/14697688.2012.744085

• C0
• C6
• C60
• Credit derivatives
• Credit risk
• Credit models
• Stochastic differential equations

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.

• 出版日期2015-5-4