A Fast Algorithm for Computing Expected Loan Portfolio Tranche Loss in the Gaussian Factor Model

Details A Fast Algorithm for Computing Expected Loan Portfolio Tranche Loss in the Gaussian Factor Model A Fast Algorithm for Computing Expected Loan Portfolio Tranche Loss in the Gaussian Factor Model

2005-06-07

arxiv.org/abs/math/0506125v2

Mathematics

Numerical Analysis

Scientific paper

We propose a fast algorithm for computing the expected tranche loss in the Gaussian factor model. We test it on a 125 name portfolio with a single factor Gaussian model and show that the algorithm gives accurate results. We choose a 125 name portfolio for our tests because this is the size of the standard DJCDX.NA.HY portfolio. The algorithm proposed here is intended as an alternative to the much slower Moody's FT method.

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