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Limiting Dependence Structures for Tail Events, with Applications to Credit Derivatives

Arthur Charpentier and Alessandro Juri
Journal of Applied Probability
Vol. 43, No. 2 (Jun., 2006), pp. 563-586
Stable URL: http://www.jstor.org/stable/27595751
Page Count: 24
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Limiting Dependence Structures for Tail Events, with Applications to Credit Derivatives
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Abstract

Dependence structures for bivariate extremal events are analyzed using particular types of copula. Weak convergence results for copulas along the lines of the Pickands-Balkema-de Haan theorem provide limiting dependence structures for bivariate tail events. A characterization of these limiting copulas is also provided by means of invariance properties. The results obtained are applied to the credit risk area, where, for intensity-based default models, stress scenario dependence structures for widely traded products such as credit default swap baskets or first-to-default contract types are proposed.

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