Tutorial on portfolio credit risk management

The distribution of possible future losses for a portfolio of credit risky corporate assets, such as bonds or loans, shows strongly asymmetric behavior and a fat tail as the consequence of the limited upside of credit (the promised coupon payment) and substantial downside if the corporation defaults...

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Bibliographic Details
Main Author: Morokoff, William J.
Format: Conference Proceeding
Language:English
Subjects:
Applied computing
Applied computing > Enterprise computing
Applied computing > Enterprise computing > Business process management
Applied computing > Law, social and behavioral sciences
Applied computing > Law, social and behavioral sciences > Economics
Applied sciences
Computer science
control theory
systems
Exact sciences and technology
Mathematics of computing
Mathematics of computing > Probability and statistics
Mathematics of computing > Probability and statistics > Probabilistic reasoning algorithms
Mathematics of computing > Probability and statistics > Probabilistic reasoning algorithms > Markov-chain Monte Carlo methods
Simulation
Software
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Summary:The distribution of possible future losses for a portfolio of credit risky corporate assets, such as bonds or loans, shows strongly asymmetric behavior and a fat tail as the consequence of the limited upside of credit (the promised coupon payment) and substantial downside if the corporation defaults. Because of correlation, it is not possible to fully diversify away this fat tail. Detailed correlation models require Monte Carlo simulation to determine the loss distribution for a credit portfolio. This tutorial covers the basics of credit risk modeling including an overview of the credit markets, a summary of what data are available for defining and calibrating models, and a discussion of key modeling questions. Finally a detailed discussion of simulation methods used in calculation credit portfolio loss distribution and related credit risk measures is presented.
DOI:10.5555/1161734.1162034