IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1006.0863.html
   My bibliography  Save this paper

A Loan Portfolio Model Subject to Random Liabilities and Systemic Jump Risk

Author

Listed:
  • Luis H. R. Alvarez
  • Jani Sainio

Abstract

We extend the Vasi\v{c}ek loan portfolio model to a setting where liabilities fluctuate randomly and asset values may be subject to systemic jump risk. We derive the probability distribution of the percentage loss of a uniform portfolio and analyze its properties. We find that the impact of liability risk is ambiguous and depends on the correlation between the continuous aggregate factor and the asset-liability ratio as well as on the default intensity. We also find that systemic jump risk has a significant impact on the upper percentiles of the loss distribution and, therefore, on both the VaR-measure as well as on the expected shortfall.

Suggested Citation

  • Luis H. R. Alvarez & Jani Sainio, 2010. "A Loan Portfolio Model Subject to Random Liabilities and Systemic Jump Risk," Papers 1006.0863, arXiv.org.
    • Handle: RePEc:arx:papers:1006.0863
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1006.0863
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    2. de Andrade, Fabio Wendling Muniz & Thomas, Lyn, 2007. "Structural models in consumer credit," European Journal of Operational Research, Elsevier, vol. 183(3), pages 1569-1581, December.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 US Sub-Prime Financial Crisis So Different?: An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299.
    4. Chunsheng Zhou, 1997. "A jump-diffusion approach to modeling credit risk and valuing defaultable securities," Finance and Economics Discussion Series 1997-15, Board of Governors of the Federal Reserve System (U.S.).
    5. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Banking crises: An equal opportunity menace," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4557-4573.
    6. Zhou, Chunsheng, 2001. "The term structure of credit spreads with jump risk," Journal of Banking & Finance, Elsevier, vol. 25(11), pages 2015-2040, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Lodge & Marta Rodriguez-Vives, 2013. "How long can austerity persist? The factors that sustain fiscal consolidations," European Journal of Government and Economics, Europa Grande, vol. 2(1), pages 5-24, June.
    2. Pais, Amelia & Stork, Philip A., 2011. "Contagion risk in the Australian banking and property sectors," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 681-697, March.
    3. Marc Hayford & Anastasios Malliaris, 2010. "Asset Prices and the Financial Crisis of 2007--09: An Overview of Theories and Policies," Forum for Social Economics, Taylor & Francis Journals, vol. 39(3), pages 279-286, January.
    4. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Perri, Fabrizio, 2013. "Global banks and crisis transmission," Journal of International Economics, Elsevier, vol. 89(2), pages 495-510.
    5. Edward S. Knotek & Stephen J. Terry, 2009. "How will unemployment fare following the recession?," Economic Review, Federal Reserve Bank of Kansas City, vol. 94(Q III), pages 5-33.
    6. Schudel, Willem, 2015. "Shifting horizons: assessing macro trends before, during, and following systemic banking crises," Working Paper Series 1766, European Central Bank.
    7. Neelam Rani & Aman Asija, 2017. "Has Financial Crisis Affected the Announcement Gains of Indian Cross-border Acquisitions?," IIM Kozhikode Society & Management Review, , vol. 6(1), pages 55-66, January.
    8. Tang, Lu & Tan, Eric K.M. & Low, Rand, 2024. "Complements or substitutes? The effect of ETFs on other managed funds," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    9. Bofinger, Peter & Franz, Wolfgang & Schmidt, Christoph M. & Weder di Mauro, Beatrice & Wiegard, Wolfgang, 2010. "Chancen für einen stabilen Aufschwung. Jahresgutachten 2010/11 [Chances for a stable upturn. Annual Report 2010/11]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201011, September.
    10. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    11. Dovern, Jonas & Jannsen, Nils, 2009. "Estimating the shape of economic crises under heterogeneity," Kiel Working Papers 1520, Kiel Institute for the World Economy (IfW Kiel).
    12. Pieter A. Gautier, 2009. "Coordination Frictions and The Financial Crisis," Tinbergen Institute Discussion Papers 09-028/3, Tinbergen Institute.
    13. Antonio Bassanetti & Martina Cecioni & Andrea Nobili & Giordano Zevi, 2011. "Le principali recessioni italiane: un confronto retrospettivo," Rivista di Politica Economica, SIPI Spa, issue 3, pages 281-318, JULY-SEPT.
    14. Luca Agnello & Davide Furceri & Ricardo M. Sousa, 2011. "Fiscal Policy Discretion, Private Spending, and Crisis Episodes," NIPE Working Papers 31/2011, NIPE - Universidade do Minho.
    15. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Banking crises: An equal opportunity menace," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4557-4573.
    16. Kenc, Turalay & Dibooglu, Sel, 2010. "The 2007-2009 financial crisis, global imbalances and capital flows: Implications for reform," Economic Systems, Elsevier, vol. 34(1), pages 3-21, March.
    17. Franklin Allen & Elena Carletti, 2010. "An Overview of the Crisis: Causes, Consequences, and Solutions-super-," International Review of Finance, International Review of Finance Ltd., vol. 10(s1), pages 1-26.
    18. Hong, Kiseok & Lee, Jong-Wha & Tang, Hsiao Chink, 2010. "Crises in Asia: Historical perspectives and implications," Journal of Asian Economics, Elsevier, vol. 21(3), pages 265-279, June.
    19. Samuel Chege Maina, 2011. "Credit Risk Modelling in Markovian HJM Term Structure Class of Models with Stochastic Volatility," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2011, January-A.
    20. Stephen G. Cecchetti & Marion Kohler & Christian Upper, 2009. "Financial crises and economic activity," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 89-135.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1006.0863. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.