Sample-Path Large Deviations in Credit Risk

[摘要] The event of large losses plays an important role in credit risk. As these large losses aretypically rare, and portfolios usually consist of a large number of positions, large deviation theory isthe natural tool to analyze the tail asymptotics of the probabilities involved. We first derive a sample-pathlarge deviation principle (LDP) for the portfolio's loss process, which enables the computationof the logarithmic decay rate of the probabilities of interest. In addition, we derive exact asymptoticresults for a number of specific rare-event probabilities, such as the probability of the loss processexceeding some given function.

[学科分类] 应用数学