Department of Mathematics

Speaker: Xin Guo
Title: Economic Default and the Arcsine Law
Affiliation: University of California, Berkeley
Date: Friday, March 18, 2011
Place and Time: Room 101, Love Building, 3:35-4:30 pm
Refreshments: Room 204, Love Building, 3:00 pm

Abstract. The credit risk crisis of 2007 and the resultant financial institution failures, including the collapse of Lehman Brothers in September of 2008, highlights the importance of an accurate assessment of the risks of the institution's investments. Crucial to the calculation of the risk of the institution's investments is the correct measurement of the timing of default. In this talk, we will briefly review the traditional models for default and introduce and build a model for a new notion of default: economic default. This new notion and model framework will then be compared with the old ones and will be related to the classical Arcsine Law distribution.

This is based on joint works with R. A. Jarrow (Cornell U.), A. de Larrard (Paris 6), and H. Lin (Credit Swiss First Boston)