We propose two structural models for stochastic losses given default which
allow to model the credit losses of a portfolio of defaultable financial
instruments. The credit losses are integrated into a structural model of
default events accounting for correlations between the default events and the
associated losses. We show how the models can be calibrated and analyze the
impact of correlations between the occurrences of defaults and recoveries by
testing our models for a representative sample portfolio.
We study the limiting behaviour of the empirical measure of a system of
diffusions interacting through their ranks when the number of diffusions tends
to infinity. We prove that the limiting dynamics is given by a McKean-Vlasov
evolution equation. Moreover, we show that in a wide range of cases the
evolution of the cumulative distribution function under the limiting dynamics
is governed by the generalized porous medium equation with convection.
We consider finite and infinite systems of particles on the real line and
half-line evolving in continuous time. Hereby, the particles are driven by
i.i.d. Levy processes endowed with rank-dependent drift and diffusion
coefficients. In the finite systems we show that the processes of gaps in the
respective particle configurations possess unique invariant distributions and
prove the convergence of the gap processes to the latter in the total variation
distance, assuming a bound on the jumps of the Levy processes.