Macroeconomics in Wave-Equation Models for Default Probability
Macroeconomics in Wave-Equation Models for Default Probability

Author(s): Han GEURDES
Subject(s): Economy
Published by: ASERS Publishing
Keywords: probability of default; statistical model extension; macroeconomic variables; test for coordinate independence
Summary/Abstract: This chapter investigates how to adapt existing probability of default (PD) models such as, fore.g. macroeconomic variables and risk variables, and investigate how they can determine together the PD. A difference is made between statistics at default and before default during normal operations. An additional matter is how to test whether or not the probability of default is independent of the chosen reference frame. This translates into the requirement that a phenomenon such as default must preferably be independent of transformations in the macroeconomic and risk variables. Affine coordinate transformations also employed in the theory of special relativity are used to find out if a default in economical variables is relatively independent of its set of coordinates.

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