Babbs, Simon H and Johnson, Andrew E (1999): Severe Loss Probabilities in Portfolio Credit Risk Models.
Download (132Kb) | Preview
We derive explicit sharp bounds on the distribution of the number of defaults from a pool of obligors with common probability of default and default correlation. These bounds are extremely wide, implying that default probabilities and default correlations only very loosely determine probabilities of severe portfolio losses. Our results quantify and thereby reinforce Gordy’s (2002) statement that “Capital decisions ... depend on higher moments”.
|Item Type:||MPRA Paper|
|Original Title:||Severe Loss Probabilities in Portfolio Credit Risk Models|
|Keywords:||Portfolio Credit Risk Models|
|Subjects:||C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C16 - Specific Distributions
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
|Depositing User:||Andrew Johnson|
|Date Deposited:||28. May 2010 06:42|
|Last Modified:||21. Feb 2013 18:27|
CSFP (1997) CreditRisk+: A Credit Risk Management Framework, Credit Suisse Financial Products, London
Finger, C C (1999) Sticks and Stones, RiskMetrics Group
Frey, R, McNeil A J (2002) “VaR and Expected Shortfall in Portfolios of Dependent Credit Risks: Conceptual and Practical Insights”, Journal of Banking and Finance, 26:7, 1317-1334
Frey, R, McNeil A J (2003) “Dependant Defaults in Models of Portfolio Credit Risk”, Journal of Risk, 6:1, 59-92
Gordy, M B (2000) “A Comparative Anatomy of Credit Risk Models”, Journal of Banking and Finance, Special Issue, 24:1-2, 119-149
Gupton, G M, Finger, C C, and Bhatia, M (1997) CreditMetrics© – Technical Document, Morgan Guaranty Trust Co., New York
Hamilton, D T, Cantor, R, and Ou, S (2002) Default and Recovery Rates of Corporate Bond Issuers, Moody’s Investors Service
Kealhofer, S (1995) “Managing Default Risk in Portfolios of Derivatives” Derivative Credit Risk: Advances in Measurement and Management, Renaissance Risk Publications
Koyluoglu, H U, Hickman, A (1998) “A Generalized Framework for Credit Risk Portfolio Models” working paper, Oliver, Wyman & Company, and CSFP Capital, Inc.
Vasicek, O (1998) “The Loan Loss Distribution” KMV Corporation
Wilson, T (1997a and b) “Portfolio Credit Risk I and II, RISK (September and October)