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Incorporating Severity Variations into Credit Risk
Zitatschlüssel BKW-Incorporating-Severity-Variations-Into-Credit-Risk
Autor Peter Bürgisser and Alexandre Kurth and Armin Wagner
Seiten 5-31
Jahr 2001
Journal Journal of Risk
Jahrgang 3
Nummer 4
Zusammenfassung 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.
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