Sensitivities and worst-case correlations for hitting probabilities of portfolio tranches

Stefan Huschens and Christoph Lehmann and Daniel Tillich

Journal of Risk Model Validation

Abstract: ABSTRACT We analyze the hitting probability of a portfolio tranche under the assumption of a Vasicek-distributed portfolio loss. The sensitivities of the hitting probability with respect to the default probability and the asset correlation of the portfolio are derived. We show that the hitting probability as a function of the correlation is non-monotonic for certain parameter constellations; this leads to worst-case hitting probabilities and worstcase correlations for each tranche. Thus, stress-testing procedures require different worst-case scenarios for different tranches depending on the parameters. All the findings on hitting probabilities carry over to wipe-out probabilities.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk-model-validat ... f-portfolio-tranches (text/html)

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:rsk:journ5:2161273

Access Statistics for this article

More articles in Journal of Risk Model Validation from Journal of Risk Model Validation
Bibliographic data for series maintained by Thomas Paine ().