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Updated: Apr 29, 2026

An R-Based Landscape Validation of a Competing Risk Model
Published on: September 16, 2022
A random matrix approach to credit risk
Michael C Münnix1, Rudi Schäfer1, Thomas Guhr1
1Faculty of Physics, University of Duisburg-Essen, Essen, Germany.
Abstract:
We estimate generic statistical properties of a structural credit risk model by considering an ensemble of correlation matrices. This ensemble is set up by Random Matrix Theory. We demonstrate analytically that the presence of correlations severely limits the effect of diversification in a credit portfolio if the correlations are not identically zero. The existence of correlations alters the tails of the loss distribution considerably, even if their average is zero. Under the assumption of randomly fluctuating correlations, a lower bound for the estimation of the loss distribution is provided.
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