An autoregressive conditional duration model of credit-risk contagion

Purpose - This paper seeks to discuss a modeling tool for explaining credit-risk contagion in credit portfolios. Design/methodology/approach - Presents a "collective risk" model that models the credit risk of a portfolio, an approach typical of insurance mathematics. Findings - ACD models are self-exciting point processes that offer a good representation of cascading phenomena due to bankruptcies. In other words, they model how a credit event might trigger other credit events. The model herein discussed is proposed as a robust global model of the aggregate loss of a credit portfolio; only a small number of parameters are required to estimate aggregate loss. Originality/value - Discusses a modeling tool for explaining credit-risk contagion in credit portfolios.