Variance-covariance based risk allocation in credit portfolios: analytical approximation

Details Variance-covariance based risk allocation in credit portfolios: analytical approximation Variance-covariance based risk allocation in credit portfolios: analytical approximation

2009-05-06

arxiv.org/abs/0905.0781v2

Economy

Quantitative Finance

Risk Management

9 pages, 2 figures

Scientific paper

High precision analytical approximation is proposed for variance-covariance
based risk allocation in a portfolio of risky assets. A general case of a
single-period multi-factor Merton-type model with stochastic recovery is
considered. The accuracy of the approximation as well as its speed are compared
to and shown to be superior to those of Monte Carlo simulation.

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