Thursday, September 10, 2009
04:30 PM in MATH 175
Professor Kiseop Lee
University of Louisville

A mathematical model for multi-name credit

Abstract

We present a new mathematical model for a multi-name credit employing a stochastic flocking. Flocking mechanisms have been used in a variety of modeling of biological, sociological and physical aggregation phenomena. As a direct application of flocking mechanisms, we introduce a credit risk model based on community flocking for a credit worthiness index (CWI). Correlations between different credit worthiness indices are explained in terms of interaction rate as in the flocking system. Based on the flocking model for CWI, we provide a credit curve for individual names and default time distribution. We study how to price credit derivatives such as a credit default swap (CDS) and a collateralized debt obligation (CDO) with the proposed model.

Refreshments will be served at 4:00 PM in HAAS 111.