Joint Default
From Open Risk Manual
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Definition
Joint Default denotes an composite risk event where two borrowers (legal entities) default on debt obligations within the Risk Horizon under consideration. The joint realization need not imply a causal relationship between the two individual defaults.
The likelihood of a joint default event is influenced by the degree of Default Dependency or Default Correlation between entities.
Formula
The general formula capturing the joint probability of default over a period k for two entities whose rating state becomes the default state D is
From Asset Correlation
A long standing Credit Portfolio Model[1] infers the joint default probability from the Asset Correlation Matrix
References
- ↑ Credit Metrics Technical Document, 1997