We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the...

We prove a law of large numbers for the loss from default and use it for approximating the distribution of the loss from default in large, potentially heterogenous portfolios. The density of the limiting measure is shown to solve a non-linear stochastic PDE, and certain moments of the limiting...

Financial institutions, government-sponsored enterprises, and asset-backed security in- vestors are often exposed to delinquency and prepayment risk from large numbers of loans. Examples include mortgages, credit cards, auto, student, and business loans. Due to the size of the pools, the...

We examine the behavior of mortgage borrowers over several economic cycles using an unprecedented dataset of origination and monthly performance records for over 120 million mortgages originated across the US between 1995 and 2014. Our deep learning model of multi-period mortgage delinquency,...

We consider the problem of optimally selecting a large portfolio of risky loans, such as mortgages, credit cards, auto loans, student loans, or business loans. Examples include loan portfolios held by financial institutions and fixed-income investors as well as pools of loans backing mortgage-...

We consider the effect of recovery rates on a pool of credit assets. We allow the recovery rate to depend on the defaults in a general way. Using the theory of large deviations, we study the structure of losses in a pool consisting of a continuum of types. We derive the corresponding rate...

We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is influenced by an idiosyncratic risk process, a...

As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent developments on mathematical and computational tools for the quantification of such phenomena....