An analytic approach to quantify the sensitivity of CreditRisk+ with respect to its underlying assumptions

Matthias Fischer and Florian Kaufmann

Journal of Risk Model Validation

Abstract: ABSTRACT In contrast to most of its competitors, the derivation of the portfolio loss distribution is straightforward within an analytic framework, and results are available almost in real time, even for larger portfolios. However, CreditRisk+ relies on certain distributional assumptions that directly affect the shape of the loss distribution and, therefore, the corresponding risk figures. To adhere to current regulatory requirements, banks are required to quantify how sensitive their models (and the resulting risk figures) are if fundamental assumptions are modified. If one or more assumptions are changed within a standard CreditRisk+ framework, the analytical solution is no longer available. Against this backdrop, we introduce the so-called MRCP model (MRCP is an abbreviation of "modified ratio calculandi periculi"). On the one hand, this model enables us to calculate sensitivities for the basic CreditRisk+ model within an analytical framework; on the other hand, it can be used for risk calculation in its own right. Furthermore, we provide results for test calculations for a hypothetical portfolio.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk-model-validat ... derlying-assumptions (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:journ5:2350369

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 ().