Mind the gap
A default intensity model reveals the risk carried by a highly leveraged counterparty
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There has been a cluster of market-driven defaults resulting in severe losses, including Archegos, Parplus, Malachite and a clearing member at Nasdaq. To understand these losses, Andrew Dickinson presents a generalised default intensity model that quantifies the extent of the risks posed by highly leveraged counterparties while remaining sufficiently tractable for practical use
In this article, we analyse the exposure to a leveraged counterparty whose default
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