A Joint Framework for Dependence Modelling

    In “Part I: An Introduction to Dependence Modelling” we gave an overview of the fundamental risks of our portfolio consisting of corporate bonds and an asset following a stock market index. The main risks are interest rate, credit and equity risk. We also gave a brief motivation for analysing the dependency structure of the risks through a joint modeling framework. In this article we seek to develop a model allowing for dependence between equity and credit risk, while excluding other risk factors such that the preceding risks can be studied in isolation