@article{BKW-Incorporating-Severity-Variations-Into-Credit-Risk,
Title = {Incorporating Severity Variations into Credit Risk},
Author = {Peter Bürgisser and Alexandre Kurth and Armin Wagner},
Pages = {5-31},
Year = {2001},
Journal = {Journal of Risk},
Volume = {3},
Number = {4},
Abstract = {We present an approach to model credit risk that incorporates the risk of counterparty default and the risk of devaluation of the collateral. The framework is based on a two-dimensional segmentation by industry and collateral type. The systematic effects in both risk drivers are taken into account by volatilities within, and by correlations between the segments. We derive a simple formula for the variance of the loss distribution and describe an algorithm to compute this distribution. Moreover, we show that in the limit of a large portfolio, the loss distribution directly mirrors the assumptions on the economy and depends on the portfolio structure only through the relative expected loss weights.},
Url = {http://www3.math.tu-berlin.de/algebra/work/CRQ.pdf},
Url2 = {http://www.risk.net/journal-of-risk/technical-paper/2161170/incorporating-severity-variations-credit-risk}
}