Capital allocation for credit portfolios with kernel estimators

Details Capital allocation for credit portfolios with kernel estimators Capital allocation for credit portfolios with kernel estimators

2006-12-16

arxiv.org/abs/math/0612470v4

Quantitative Finance, Vol. 9, No. 5, August 2009, 581--595

Mathematics

Statistics Theory

22 pages, 12 tables, 1 figure, some amendments

Scientific paper

10.1080/14697680802620599

Determining contributions by sub-portfolios or single exposures to portfolio-wide economic capital for credit risk is an important risk measurement task. Often economic capital is measured as Value-at-Risk (VaR) of the portfolio loss distribution. For many of the credit portfolio risk models used in practice, the VaR contributions then have to be estimated from Monte Carlo samples. In the context of a partly continuous loss distribution (i.e. continuous except for a positive point mass on zero), we investigate how to combine kernel estimation methods with importance sampling to achieve more efficient (i.e. less volatile) estimation of VaR contributions.

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