A self-exciting model for defaults is one where
A)There are non-random exogenous changes in the rate at which defaults arrive.
B)The volatility of the intensity increases with the level of losses.
C)The rate at which defaults arrive increases with the level of losses.
D)Excitement from defaults is spontaneous!

Question

Quizplus · Accepted Answer

The correct answer is C because in a self-exciting model for defaults, the rate at which defaults occur increases with the level of losses already experienced. This means that past defaults can influence the likelihood of future defaults, creating a feedback loop where initial losses lead to an increased rate of further defaults.

A Self-Exciting Model for Defaults Is One Where