Computation of VaR and VaR contribution in the Vasicek portfolio credit loss model: a comparative study

Xinzheng Huang, Cornelis W. Oosterlee and Mâcé Mesters

Journal of Credit Risk

Abstract: ABSTRACT We compare various numerical methods for the estimation of the VaR and the marginal VaR contribution (VaRC) in the Vasicek one-factor portfolio credit loss model. The methods we investigate are the normal approximation, the saddlepoint approximation, a simplified saddlepoint approximation and importance sampling. We investigate each method in terms of speed, accuracy and robustness and in particular explore their abilities of dealing with exposure concentration.

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