THIS IS THE DEV/TESTING WEBSITE IPv4: 3.16.68.255 IPv6: || Country by IP: GB
Close Search Advanced
Journals
Resources
About Us
Open Access
Journals
Resources
About Us
Open Access

Stochastie Essentials for the Risk Management of Credit Portfolios

Stochastie Essentials for the Risk Management of Credit Portfolios
Read Now
Download (PDF)

Year:    2003

Author:    Overbeck, Ludger, Stahl, Gerhard

Credit and Capital Markets – Kredit und Kapital, Vol. 36 (2003), Iss. 1 : pp. 52–81

Abstract

Recent developments in portfolio and risk management are driven by the need of quantitative risk assessment. Mertons asset value approach is presented in a portfolio context. Loss distributions are derived and different definitions of economic capital are considered. In particular the loss distribution underlying the current Basel II discussions is derived. A challenging task for risk management is the allocation of the risk capital to business units and single transactions. An analysis of two capital allocation methods is carried out. One based on expected shortfall contribution in credit portfolio modeling and the other based on contribution to the volatility which is the more traditional one. It turns out that the second one overestimates the risk of low rated counterparties with low concentration risk. The reason for this is that at the standard deviation many small losses are important, whereas at the quantile of the loss distribution large but rare losses are more important. This is captured by Expected Shortfall. Therefore Expected Shortfall contribution rewards diversification - name, industry and regional diversification. (JEL G31, G24, G00)

Journal Article Details

Publisher Name:    Global Science Press

Language:    Multiple languages

DOI:    https://doi.org/10.3790/ccm.36.1.52

Credit and Capital Markets – Kredit und Kapital, Vol. 36 (2003), Iss. 1 : pp. 52–81

Published online:    2003-01

AMS Subject Headings:    Duncker & Humblot

Copyright:    COPYRIGHT: © Global Science Press

Pages:    30

Author Details

Overbeck, Ludger

Stahl, Gerhard

  1. P. Artzner, F. Dealban, J.-M. Eber and D. Heath, Thinking Coherently, RISK MAGAZINE, November 1997.  Google Scholar
  2. D. E. Baestaens und W. M. van den Bergh, A Portfolio Approach to Default Risk, Neural Network World, Volume 7, 529-541, 1997.  Google Scholar
  3. D. Tasche, Risk contributions and performance measurement, Preprint 1999.  Google Scholar
  4. The Internal Rating-Based Approach. Consultative Document. Bank for international settlements. January 2001. (2001).  Google Scholar
  5. F. Black und M. Scholes, The Pricing of Options and Corporate Liabilities, Journal of Political Economy 81: 637-654 (1973).  Google Scholar

Section Title Page Action Price
Ludger Overbeck/Gerhard Stahl: Stochastic Essentials for the Risk Management\rof Credit Portfolios 52
I. Introduction 52
II. Credit Portfolios 54
III. Default Models 55
IV. Correlation Model 58
V. Loss Distribution 63
1. Monte-Carlo Simulation 64
2. Analytical Approximation for Uniform Portfolios 65
VI. Economic Capital 67
1. Quantiles 67
2. Coherent Risk Measures and Conditional Shortfall 68
VII. Contributory Capital 68
1. Variance/ Covariance Approach 69
2. Conditional Expectations 71
3. Formal Properties of Shortfall Contributions 73
4. Simulation Studies 74
References 79
Summary: Stochastic Essentials for the Risk Management of Credit Portfolios 80
Zusammenfassung: Stochastische Grundlagen für das Risikomanagement von Kreditportfolien 80
Résumé: Fondements stochastiques pour la gestion des risques et des portefeuilles de crédit 81