The Ising Model on a Heavy Gravity Portfolio Applied to Default Contagion
Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis [Artistic work]
In this paper we introduce a model of default contagion in the financail market. The structure of the companies are represented by a Heavy Gravity Portfolio, where we assume there are N sectors in the market and in each sector i, there is one big trader and ni supply companies.The supply companies in each sector are directly inuenced by the bigtrader and the big traders are also pairwise interacting with each other.This development of the Ising model is called Heavy gravity portfolioand according to this, the relation between expectation and correlationof the default of companies are derived by means of simulations utilisingthe Gibbs sampler. Finally methods for maximum likelihood estimationand for a likelihood ratio test of the interaction parameter in the modelare derived.
Place, publisher, year, edition, pages
2011. , 41 p.
Financial Mathematics, Ising model, portfolio, default contagion
Probability Theory and Statistics
IdentifiersURN: urn:nbn:se:hh:diva-16459Local ID: IDE1126OAI: oai:DiVA.org:hh-16459DiVA: diva2:448327
Subject / course
2011-05-30, Wigforssallen, Halmstad University, Halmstad, 14:27 (English)
UppsokPhysics, Chemistry, Mathematics
Jarpe, Eric, PhD
Bordag, Ljudmila A., Professor Dr.