Binomial approximation and large deviations for defaults
Binomial approximation and large deviations for defaults
Let be the total number of defaults among banks, and let be the corresponding asymptotic default probability. Default-count conjecture. The random variable should be approximately binomially distributed with parameters and , and large-deviation estimates for a binomial distribution should apply to . This would permit rare-event probabilities for systemic defaults to be estimated through binomial large-deviation theory. The source does not specify a precise mode of approximation or establish the claimed large-deviation principle.
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Primary source
Veeraruna Kavitha, Indrajit Saha and Sandeep Juneja, “Random Fixed Points, Limits and Systemic risk”, arXiv:1809.05243 (2021).
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