Analytical Framework for Credit Portfolios. Part I: Systematic Risk

Details Analytical Framework for Credit Portfolios. Part I: Systematic Risk Analytical Framework for Credit Portfolios. Part I: Systematic Risk

2009-11-02

arxiv.org/abs/0911.0223v3

Economy

Quantitative Finance

Risk Management

Obsolete, see "Analytical Framework for Credit Portfolios" instead

Scientific paper

Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures (standard deviation, VaR and Expected Shortfall) as well as allocation of risk down to individual transactions. The underlying model is the industry standard multi-factor Merton-type model with arbitrary valuation function at horizon (in contrast to the simplistic default-only case). High accuracy of the proposed analytical technique is demonstrated by benchmarking against Monte Carlo simulations.

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