Credit risk assessment of fixed income portfolios using explicit expressions

Bernardo K. Pagnoncelli and Arturo Cifuentes ()

Finance Research Letters, 2014, vol. 11, issue 3, 224-230

Abstract: We propose a model to assess the credit risk features of fixed income portfolios assuming they can be characterized by two parameters: their default probability and their default correlation. We rely on explicit expressions to assess their credit risk and demonstrate the benefits of our approach in a complex leveraged structure example. We show that using expected loss as a proxy for credit risk is misleading as it does not capture the dispersion effects introduced by correlation. The implications of these findings are relevant for improving current risk management practices and for regulation purposes.

Keywords: Credit risk; Expected loss; Correlation (search for similar items in EconPapers)
JEL-codes: C65 D81 G11 G21 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612314000099
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:11:y:2014:i:3:p:224-230

DOI: 10.1016/j.frl.2014.02.007

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().