Portfolio default models based on a conditionally independence assumption are popular due to their analytical viability. Most models in this regard, however, use as common factor a static random variable (corresponding to, e.g., the one-factor Gaussian copula, the extendible Archimedean copula). In order to obtain a dynamic model, we use as common factor a stochastic process. Starting as our base case with a Lévy subordinator (see , corresponding to a Marshall-Olkin dependence structure), we generalize the model in different directions and investigate the resulting dependence structures (see ). Moreover, we show how popular portfolio credit derivatives can efficiently be evaluated in such a framework and present some calibration results.
 J.-F. Mai, M. Scherer, A tractable multivariate default model based on a stochastic time-change, International Journal of Theoretical and Applied Finance 12:2 (2009) pp. 227-249.
 J.-F. Mai, M. Scherer, R. Zagst, CIID default models and implied copulas, working paper (2010).
Keywords: Portfolio credit derivative; De Finetti's theorem; Large-homogeneous portfolio approximation; Lévy-frailty model
Biography: Matthias Scherer is professor at the “HVB-Institute for Mathematical Finance” at the “Technische Universität München”. He holds a Master's degree in mathematics from “Syracuse University” and a Diploma as well as a PhD in “Wirtschaftsmathematik” from “Ulm University”. His research focus lies on multivariate stochastic models with applications to various fields.