RMBI 4210 Quantitative Methods for Risk Management Tutorial 8 CreditRisk+
CreditRisk+ is an actuarial mathematical approach for calculation of the loss distribution of a portfolio. It is a statistical model of credit default risk that makes no assumptions about the
causes of default. (Pros and Cons on Lecture notes P22-24, NO rating migrations are considered!)
Fundamentals of CreditRisk+:
• Gamma-mixed Poisson distribution (default event is modeled by Poisson distribution while the probability of default of an obligor is not a constant, it follows a gamma distribution); P38-42, P48
• Implicit correlation between obligors via risk factors (sector analysis, assuming linear relationship between the systematic risk factors and the default probabilities and conditional independence); then we can generalize it from single-factor case to multiple- factor case; P54-67
• Exposure bands (for simplication): replace (round up) each exposure amount of obligors by the nearest integer multiple the unit of exposure. P30-33
Reference
http://www.math.ust.hk/~maykwok/Web_ppt/CreditRisk+/CreditRisk+.pdf https://hal.archives-ouvertes.fr/hal-01696011/document
PGF
https://www.stat.auckland.ac.nz/~fewster/325/notes/ch4.pdf
HW Q25
Spring, 2021 Wang Jingjing
Page 1