Modelling Correlations in Portfolio Credit Risk

Details Modelling Correlations in Portfolio Credit Risk Modelling Correlations in Portfolio Credit Risk

2004-01-19

arxiv.org/abs/cond-mat/0401329v1

Physics

Condensed Matter

Statistical Mechanics

5 pages, 4 figures

Scientific paper

The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the resulting estimation error hinders the detection of a signal. We present statistical evidence that PD correlations are well described by a (one-)factorial model. We suggest a method of parameter estimation which avoids in a controlled way the underestimation of correlation risk. Empirical evidence is presented that, in the framework of the CreditRisk+ model with integrated correlations, this method leads to an increased reliability of the economic capital estimate.

Affiliated with

Also associated with

No associations

Rating

Modelling Correlations in Portfolio Credit Risk does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Modelling Correlations in Portfolio Credit Risk, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Modelling Correlations in Portfolio Credit Risk will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-569770