New method predicts financial defaults, revolutionizing credit risk assessment.
The article discusses default correlation in financial markets. It uses a concept called "time-until-default" to measure how long a financial entity can survive without defaulting. By analyzing the correlation between survival times, the study shows that default correlation can be understood using copula functions. These functions help in valuing credit derivatives like credit default swaps. The research demonstrates that the current method of assessing default correlation is similar to using a normal copula function.