Measuring portfolio credit risk: modelling versus calibration errors

Nikola Tarashev () and Haibin Zhu

BIS Quarterly Review, 2007

Abstract: A model-based assessment of credit risk is subject to both specification and calibration errors. Focusing on a well known credit risk model, we propose a methodology for quantifying the relative importance of alternative sources of such errors and apply this methodology to a large data set. We find that flawed calibration of the model can substantially affect the measured level of portfolio credit risk. By contrast, a model misspecification generally has a limited impact, especially for large, well diversified portfolios.

JEL-codes: C15 G13 G21 G28 (search for similar items in EconPapers)
Date: 2007
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