Resource title

Modelling correlations in credit portfolio risk II

Resource image

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Resource description

The risk of a credit portfolio depends crucially on correlations between latent covariates, for instance the probability of default (PD) in different economic sectors. Often, correlations have to be estimated from relatively short time series, and the resulting estimation error hinders the detection of a signal. We suggest a general method of parameter estimation which avoids in a controlled way the underestimation of correlation risk. Empirical evidence is presented how, in the framework of the CreditRisk+ model with integrated correlations, this method leads to an increased economic capital estimate. Thus, the limits of detecting the portfolio's diversification potential are adequately reflected.

Resource author

Bernd Rosenow, Rafael WeiƟbach, Frank Altrock

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/24992

Resource license

Adapt according to the presented license agreement and reference the original author.