TY - JOUR
AU - Dembo,Amir
AU - Deuschel,Jean-Deominique
AU - Duffie,Darrell
TI - Large Portfolio Losses
JF - National Bureau of Economic Research Working Paper Series
VL - No. 9177
PY - 2002
Y2 - September 2002
DO - 10.3386/w9177
UR - http://www.nber.org/papers/w9177
L1 - http://www.nber.org/papers/w9177.pdf
N1 - Author contact info:
Amir Dembo
Stanford University
Department of Statistics and
Department of Mathematics
E-Mail: amir@math.stanford.edu
Jean-Deominique Deuschel
Technical University of Berlin
E-Mail: Deuschel@math.tu-berlin.de
Darrell Duffie
Graduate School of Business
Stanford University
Stanford, CA 94305-7298
Tel: 650/723-1976
Fax: 650/725-7979
E-Mail: duffie@stanford.edu
AB - This paper provide a large-deviations approximation of the tail distribution of total financial losses on a portfolio consisting of many positions. Applications include the total default losses on a bank portfolio, or the total claims against an insurer. The results may be useful in allocating exposure limits, and in allocating risk capital across different lines of business. Assuming that, for a given total loss, the distress caused by the loss is larger if the loss occurs within a smaller time period, we provide a large-deviations estimate of the likelihood that there will exist a sub-period of the future planning period during which a total loss of the critical severity occurs. Under conditions, this calculation is reduced to the calculation of the likelihood of the same sized loss over a fixed initial time interval whose length is a property of the portfolio and the critical loss level.
ER -