Analytical methods for hedging systematic credit risk with linear factor portfolios

Multi-factor credit portfolio models are used widely today for managing economic capital and pricing collateralized debt obligations (CDOs) and asset-backed securities. Commonly, practitioners allocate capital to the portfolio components (sub-portfolios, counterparties, or transactions). The hedging...

Full description

Saved in:
Bibliographic Details
Published in:Journal of economic dynamics & control 2009, Vol.33 (1), p.37-52
Main Authors: Rosen, Dan, Saunders, David
Format: Article
Language:English
Subjects:
Asset backed securities
Capital
Capital allocation
Collateralized debt obligations
Credit
Credit risk
Credit risk Factor models Hedging Capital allocation
Factor models
Hedging
Linear models
Portfolio investments
Portfolio management
Pricing
Risk
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
cited_by cdi_FETCH-LOGICAL-c485t-87043e89ca11304a3785ff4b5bf394707248f9c1b1d9be17ded859b15451ee6c3
cites cdi_FETCH-LOGICAL-c485t-87043e89ca11304a3785ff4b5bf394707248f9c1b1d9be17ded859b15451ee6c3
container_end_page 52
container_issue 1
container_start_page 37
container_title Journal of economic dynamics & control
container_volume 33
creator Rosen, Dan
Saunders, David
description Multi-factor credit portfolio models are used widely today for managing economic capital and pricing collateralized debt obligations (CDOs) and asset-backed securities. Commonly, practitioners allocate capital to the portfolio components (sub-portfolios, counterparties, or transactions). The hedging of credit risk is generally also focused on the ‘deltas’ of underlying names. We present analytical results for hedging portfolio credit risk with linear combinations of systematic factors, based on the minimization of systematic variance of portfolio losses. We solve these problems within a multi-factor Merton-type credit portfolio model, and apply them to hedge systematic credit default losses of loan portfolios and CDOs.
doi_str_mv 10.1016/j.jedc.2008.03.010
format article
fullrecord <record><control><sourceid>proquest_cross</sourceid><recordid>TN_cdi_proquest_miscellaneous_37139969</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><els_id>S0165188908000808</els_id><sourcerecordid>37139969</sourcerecordid><originalsourceid>FETCH-LOGICAL-c485t-87043e89ca11304a3785ff4b5bf394707248f9c1b1d9be17ded859b15451ee6c3</originalsourceid><addsrcrecordid>eNp9kMGO1SAUhonRxOvoC7giLty1ckppIXEzmahjMsks1DWh9DCX2pYK3DF9e7m5xoWLWfycBd9_Ah8hb4HVwKD7MNUTjrZuGJM14zUD9owcQPaqgr7lz8mhQKICKdVL8iqliTEmGgEH8u16NfOevTUzXTAfw5ioC5EecXzw6wNNe8q4mAJQG3H0mUafftLfPh_p7Fc0kTpjc2lsIWYXZh_Sa_LCmTnhm7_zivz4_On7zW11d__l6831XWVbKXIle9ZylMoaAM5aw3spnGsHMTiu2p71TSudsjDAqAaEfsRRCjWAaAUgdpZfkfeXvVsMv06Ysl58sjjPZsVwSpr3wJXqVAHf_QdO4RTLx5MG1XUdEwwK1FwgG0NKEZ3eol9M3DUwfZasJ32WrM-SNeO6SC6l20sp4ob2XwMRx321YdWPmhvOy7GXlKYqw5dAyXa-67Vo9DEvZdXHyyosyh49Rp2sx9UW6RFt1mPwT73kDxEvnkE</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>196660501</pqid></control><display><type>article</type><title>Analytical methods for hedging systematic credit risk with linear factor portfolios</title><source>International Bibliography of the Social Sciences (IBSS)</source><source>ScienceDirect Freedom Collection</source><creator>Rosen, Dan ; Saunders, David</creator><creatorcontrib>Rosen, Dan ; Saunders, David</creatorcontrib><description>Multi-factor credit portfolio models are used widely today for managing economic capital and pricing collateralized debt obligations (CDOs) and asset-backed securities. Commonly, practitioners allocate capital to the portfolio components (sub-portfolios, counterparties, or transactions). The hedging of credit risk is generally also focused on the ‘deltas’ of underlying names. We present analytical results for hedging portfolio credit risk with linear combinations of systematic factors, based on the minimization of systematic variance of portfolio losses. We solve these problems within a multi-factor Merton-type credit portfolio model, and apply them to hedge systematic credit default losses of loan portfolios and CDOs.</description><identifier>ISSN: 0165-1889</identifier><identifier>EISSN: 1879-1743</identifier><identifier>DOI: 10.1016/j.jedc.2008.03.010</identifier><identifier>CODEN: JEDCDH</identifier><language>eng</language><publisher>Amsterdam: Elsevier B.V</publisher><subject>Asset backed securities ; Capital ; Capital allocation ; Collateralized debt obligations ; Credit ; Credit risk ; Credit risk Factor models Hedging Capital allocation ; Factor models ; Hedging ; Linear models ; Portfolio investments ; Portfolio management ; Pricing ; Risk ; Studies</subject><ispartof>Journal of economic dynamics &amp; control, 2009, Vol.33 (1), p.37-52</ispartof><rights>2008 Elsevier B.V.</rights><rights>Copyright Elsevier Sequoia S.A. Jan 2009</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c485t-87043e89ca11304a3785ff4b5bf394707248f9c1b1d9be17ded859b15451ee6c3</citedby><cites>FETCH-LOGICAL-c485t-87043e89ca11304a3785ff4b5bf394707248f9c1b1d9be17ded859b15451ee6c3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>314,780,784,4024,27923,27924,27925,33223,33224</link.rule.ids><backlink>$$Uhttp://econpapers.repec.org/article/eeedyncon/v_3a33_3ay_3a2009_3ai_3a1_3ap_3a37-52.htm$$DView record in RePEc$$Hfree_for_read</backlink></links><search><creatorcontrib>Rosen, Dan</creatorcontrib><creatorcontrib>Saunders, David</creatorcontrib><title>Analytical methods for hedging systematic credit risk with linear factor portfolios</title><title>Journal of economic dynamics &amp; control</title><description>Multi-factor credit portfolio models are used widely today for managing economic capital and pricing collateralized debt obligations (CDOs) and asset-backed securities. Commonly, practitioners allocate capital to the portfolio components (sub-portfolios, counterparties, or transactions). The hedging of credit risk is generally also focused on the ‘deltas’ of underlying names. We present analytical results for hedging portfolio credit risk with linear combinations of systematic factors, based on the minimization of systematic variance of portfolio losses. We solve these problems within a multi-factor Merton-type credit portfolio model, and apply them to hedge systematic credit default losses of loan portfolios and CDOs.</description><subject>Asset backed securities</subject><subject>Capital</subject><subject>Capital allocation</subject><subject>Collateralized debt obligations</subject><subject>Credit</subject><subject>Credit risk</subject><subject>Credit risk Factor models Hedging Capital allocation</subject><subject>Factor models</subject><subject>Hedging</subject><subject>Linear models</subject><subject>Portfolio investments</subject><subject>Portfolio management</subject><subject>Pricing</subject><subject>Risk</subject><subject>Studies</subject><issn>0165-1889</issn><issn>1879-1743</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2009</creationdate><recordtype>article</recordtype><sourceid>8BJ</sourceid><recordid>eNp9kMGO1SAUhonRxOvoC7giLty1ckppIXEzmahjMsks1DWh9DCX2pYK3DF9e7m5xoWLWfycBd9_Ah8hb4HVwKD7MNUTjrZuGJM14zUD9owcQPaqgr7lz8mhQKICKdVL8iqliTEmGgEH8u16NfOevTUzXTAfw5ioC5EecXzw6wNNe8q4mAJQG3H0mUafftLfPh_p7Fc0kTpjc2lsIWYXZh_Sa_LCmTnhm7_zivz4_On7zW11d__l6831XWVbKXIle9ZylMoaAM5aw3spnGsHMTiu2p71TSudsjDAqAaEfsRRCjWAaAUgdpZfkfeXvVsMv06Ysl58sjjPZsVwSpr3wJXqVAHf_QdO4RTLx5MG1XUdEwwK1FwgG0NKEZ3eol9M3DUwfZasJ32WrM-SNeO6SC6l20sp4ob2XwMRx321YdWPmhvOy7GXlKYqw5dAyXa-67Vo9DEvZdXHyyosyh49Rp2sx9UW6RFt1mPwT73kDxEvnkE</recordid><startdate>2009</startdate><enddate>2009</enddate><creator>Rosen, Dan</creator><creator>Saunders, David</creator><general>Elsevier B.V</general><general>Elsevier</general><general>Elsevier Sequoia S.A</general><scope>DKI</scope><scope>X2L</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>2009</creationdate><title>Analytical methods for hedging systematic credit risk with linear factor portfolios</title><author>Rosen, Dan ; Saunders, David</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c485t-87043e89ca11304a3785ff4b5bf394707248f9c1b1d9be17ded859b15451ee6c3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2009</creationdate><topic>Asset backed securities</topic><topic>Capital</topic><topic>Capital allocation</topic><topic>Collateralized debt obligations</topic><topic>Credit</topic><topic>Credit risk</topic><topic>Credit risk Factor models Hedging Capital allocation</topic><topic>Factor models</topic><topic>Hedging</topic><topic>Linear models</topic><topic>Portfolio investments</topic><topic>Portfolio management</topic><topic>Pricing</topic><topic>Risk</topic><topic>Studies</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Rosen, Dan</creatorcontrib><creatorcontrib>Saunders, David</creatorcontrib><collection>RePEc IDEAS</collection><collection>RePEc</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of economic dynamics &amp; control</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Rosen, Dan</au><au>Saunders, David</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Analytical methods for hedging systematic credit risk with linear factor portfolios</atitle><jtitle>Journal of economic dynamics &amp; control</jtitle><date>2009</date><risdate>2009</risdate><volume>33</volume><issue>1</issue><spage>37</spage><epage>52</epage><pages>37-52</pages><issn>0165-1889</issn><eissn>1879-1743</eissn><coden>JEDCDH</coden><abstract>Multi-factor credit portfolio models are used widely today for managing economic capital and pricing collateralized debt obligations (CDOs) and asset-backed securities. Commonly, practitioners allocate capital to the portfolio components (sub-portfolios, counterparties, or transactions). The hedging of credit risk is generally also focused on the ‘deltas’ of underlying names. We present analytical results for hedging portfolio credit risk with linear combinations of systematic factors, based on the minimization of systematic variance of portfolio losses. We solve these problems within a multi-factor Merton-type credit portfolio model, and apply them to hedge systematic credit default losses of loan portfolios and CDOs.</abstract><cop>Amsterdam</cop><pub>Elsevier B.V</pub><doi>10.1016/j.jedc.2008.03.010</doi><tpages>16</tpages></addata></record>
fulltext fulltext
identifier ISSN: 0165-1889
ispartof Journal of economic dynamics & control, 2009, Vol.33 (1), p.37-52
issn 0165-1889
1879-1743
language eng
recordid cdi_proquest_miscellaneous_37139969
source International Bibliography of the Social Sciences (IBSS); ScienceDirect Freedom Collection
subjects Asset backed securities
Capital
Capital allocation
Collateralized debt obligations
Credit
Credit risk
Credit risk Factor models Hedging Capital allocation
Factor models
Hedging
Linear models
Portfolio investments
Portfolio management
Pricing
Risk
Studies
title Analytical methods for hedging systematic credit risk with linear factor portfolios
url http://sfxeu10.hosted.exlibrisgroup.com/loughborough?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2025-01-02T17%3A59%3A46IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-proquest_cross&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Analytical%20methods%20for%20hedging%20systematic%20credit%20risk%20with%20linear%20factor%20portfolios&rft.jtitle=Journal%20of%20economic%20dynamics%20&%20control&rft.au=Rosen,%20Dan&rft.date=2009&rft.volume=33&rft.issue=1&rft.spage=37&rft.epage=52&rft.pages=37-52&rft.issn=0165-1889&rft.eissn=1879-1743&rft.coden=JEDCDH&rft_id=info:doi/10.1016/j.jedc.2008.03.010&rft_dat=%3Cproquest_cross%3E37139969%3C/proquest_cross%3E%3Cgrp_id%3Ecdi_FETCH-LOGICAL-c485t-87043e89ca11304a3785ff4b5bf394707248f9c1b1d9be17ded859b15451ee6c3%3C/grp_id%3E%3Coa%3E%3C/oa%3E%3Curl%3E%3C/url%3E&rft_id=info:oai/&rft_pqid=196660501&rft_id=info:pmid/&rfr_iscdi=true