intraJDP1 {AssetCorr}

Joint Default Probability Matching Estimator, Lucas (1995)

Description

The intra asset correlation will be estimated by fitting the empirical joint default probability (JDP) of the default rate time series to the theoretical one and backing out the remaining correlation parameter numerically. The unbiased estimator of Lucas (1995) will be used for the empirical JDP. Additionally, bootstrap and jackknife corrections are implemented.

Usage

intraJDP1(d, n, B = 0, DB=c(0,0), JC = FALSE, CI_Boot, type="bca", plot=FALSE)

Arguments

d

a vector, containing the default time series of the sector.

n

a vector, containing the number of obligors at the beginning of the period over time.

B

an integer, indicating how many bootstrap repetitions should be used for the single bootstrap corrected estimate.

DB

a combined vector, indicating how many bootstrap repetitions should be used for the inner (first entry) and outer loop (second entry) to correct the bias using the double bootstrap.

JC

a logical variable, indicating if the jackknife corrected estimate should be calculated.

CI_Boot

a number, indicating the desired confidence interval if the single bootstrap correction is specified. By default, the interval is calculated as the bootstrap corrected and accelerated confidence interval (Bca).

type

a string, indicating the desired method to calculate the bootstrap confidence intervals. For more details see boot.ci. Studendized confidence intervals are not supported.

plot

a logical variable, indicating whether a plot of the single bootstrap density should be generated.

Details

Kalkbrener and Onwunta (2010) for example showed that the JDP of the default rates follow a bivariate normal distribution. The intra asset correlation will be estimated by fitting the empirical JDP of the default rate time series on the theoretical JDP of the default rate and backing out the remaining correlation parameter numerically. The empirical JDP is calculated by the (unbiased) estimator of Lucas (1995). If DB is specified, the single bootstrap corrected estimate will be calculated by using the bootstrap values of the outer loop (oValues).

Value

The returned value is a list, containing the following components (depending on the selected arguments):

Original

Estimate of the original method

Bootstrap

Bootstrap corrected estimate

Double_Bootstrap

Double bootstrap corrected estimate

Jackknife

Jackknife corrected estimate

CI_Boot

Selected two-sided bootstrap confidence interval

bValues

Estimates from the bootstrap resampling

iValues

Estimates from the double bootstrap resampling- inner loop

oValues

Estimates from the double bootstrap resampling- outer loop

References

Chang J, Hall P (2015). “Double-bootstrap methods that use a single double-bootstrap simulation.” Biometrika, 102(1), 203–214.

Efron B, Tibshirani RJ (1994). An introduction to the bootstrap. CRC press.

Kalkbrener M, Onwunta A (2010). “Validating structural credit portfolio models.” Model risk - identification, measurement and management. Risk Books, London, 233–261.

Lucas DJ (1995). “Default correlation and credit analysis.” The Journal of Fixed Income, 4(4), 76–87.

See Also

intraAMM, intraFMM, intraJDP2, intraCMM, intraMLE, intraAMLE, intraMode,intraBeta

Examples

set.seed(111)
d=defaultTimeseries(1000,0.3,20,0.01)
n=rep(1000,20)

IntraCorr=intraJDP1(d,n)
#Jackknife correction
IntraCorr=intraJDP1(d,n, JC=TRUE)


#Bootstrap correction with confidence intervals
IntraCorr=intraJDP1(d,n, B=1000, CI_Boot=0.95 )

#Bootstrap correction with confidence intervals and plot
IntraCorr=intraJDP1(d,n, B=1000, CI_Boot=0.95, plot=TRUE )

#Double Bootstrap correction with 10 repetitions in the inner loop and 50 in the outer loop
IntraCorr=intraJDP1(D1,N1, DB=c(10,50))