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The Credit Securitisation Process as a Tool of Portfolio Credit Risk Managing

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  • Di Clemente Annalisa

Abstract

This study explores the role of the credit securitisation process in managing the credit risk amount of the banking loan portfolio, when the bank originator retains a residual equitylike class as illiquid first loss position (FLP). An Importance Sampling Monte Carlo simulation model has been implemented for estimating the portfolio credit risk amount, taking into account the portfolio credit risk mitigation effect provided by the credit securitisation process. This study identifies the credit asset pool able to produce the larger effect of credit risk reduction on the loan portfolio, when the asset pool is unloaded off the banking book. Moreover, this simulation analysis quantifies the extent of the portfolio credit risk mitigation, produced by the securitisation process of the asset pool previously identified. The impact of the securitisation activity has been also investigated when the probability of default and the asset return correlation of the obligors in portfolio are changing.

Suggested Citation

  • Di Clemente Annalisa, 2011. "The Credit Securitisation Process as a Tool of Portfolio Credit Risk Managing," STUDI ECONOMICI, FrancoAngeli Editore, vol. 0(104), pages 5-28.
    • Handle: RePEc:fan:steste:v:html10.3280/ste2011-104001
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    More about this item

    Keywords

    Credit securitisation; portfolio credit risk management; copula functions; importance sampling; Monte Carlo simulation; risk measures;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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