Chance Discovery in Credit Risk Management; Estimation of Chain Reaction Bankruptcy Structure by Chance Discovery Method

Abstract

Credit risk management based on portfolio theory becomes popular in recent Japanese financial industry. But consideration and modeling of chain reaction bankruptcy effect in credit portfolio analysis leave much room for improvement even though the importance of the effect is recognized among credit analysis experts. That is partly because method for grasping relations among companies with limited data is underdeveloped. In this article, chance discovery method is applied to estimate structure of industrial relations that are to include companies' relations that transmit chain reaction of bankruptcy. The steps for the data analysis is introduced and result of example analysis with Japanese default events data of 2005 is presented.

Estimation of chain reaction bankruptcy structure by chance discovery method — With time order method and directed KeyGraph

“…First, we explain the original method proposed in our previous work (Goda & Ohsawa, 2006) and introduce its basic idea. Then, we explain newly introduced "time order method".…”

“…We proposed a method that detects relationship among bankrupted companies, by chance discovery method in our previous work (Goda & Ohsawa, 2006 …”