We model aggregate credit losses on large portfolios of financial positions contracted with firms subject to both cyclical default correlation and direct default contagion processes. Cyclical correlation is due to the dependence of firms on common economic factors. Credit contagion phenomena are...

The recent accounting scandals at Enron, WorldCom, and Tyco were related to the (intentional) non-disclosure of a part of the firm's liabilities. We provide a structural model of correlated multi-firm default, in which public bond investors are uncertain about the liability-dependent barrier at...

Credit risk is the distribution of financial losses due to unexpected changes in the credit quality of a counterparty in a financial agreement. We review the structural, reduced form and incomplete information approaches to estimating joint default probabilities and prices of credit sensitive...

We model aggregate credit losses on large portfolios of financial positions contracted with firms subject to both cyclical default correlation and direct default contagion processes. Cyclical correlation is due to the dependence of firms on common economic factors. Credit contagion phenomena are...

The recent accounting scandals at Enron, WorldCom, and Tyco wererelated to the (intentional) non-disclosure of a part of the firm's liabilities. We provide a structural model of correlated multi-firm default, in which public bond investors are uncertain about the liability-dependent barrier at...

Credit contagion refers to the propagation of economic distress from one firm to another. This article proposes a reduced-form model for these contagion phenomena, assuming they are due to the local interaction of firms in a business partner network. We study aggregate credit losses on large...