Probabilistic Overview of Probabilities of Default for Low Default Portfolios by K. Pluto and D. Tasche

Authors

  • Andrius Grigutis Institute of Mathematics, Faculty of Mathematics and Informatics, Vilnius University, Naugarduko g. 24, Vilnius

DOI:

https://doi.org/10.17721/1812-5409.2023/2.7

Keywords:

probability of default, binomial distribution, beta-normal distribution, Vasicek distribution, Pluto-Tasche method

Abstract

This article gives a probabilistic overview of the widely used method of default probability estimation proposed by K. Pluto and D. Tasche. There are listed detailed assumptions and derivation of the inequality where the probability of default is involved under the influence of systematic factor. The author anticipates adding more clarity, especially for early career analysts or scholars, regarding the assumption of borrowers' independence, conditional independence, and interaction between the probability distributions such as binomial, beta, normal, and others. There is also shown the relation between the probability of default and the joint distribution of  \sqrt{ϱ}X - \sqrt{1-ϱ}Y, where X, including but not limiting, is the standard normal, Y admits, including but not limiting, the beta-normal distribution and X, Y are independent.

Pages of the article in the issue: 63 - 74

Language of the article: English

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Published

2023-12-23

How to Cite

Grigutis, A. (2023). Probabilistic Overview of Probabilities of Default for Low Default Portfolios by K. Pluto and D. Tasche. Bulletin of Taras Shevchenko National University of Kyiv. Physical and Mathematical Sciences, (2), 63–74. https://doi.org/10.17721/1812-5409.2023/2.7

Issue

Section

Algebra, Geometry and Probability Theory