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Variance-covariance based risk allocation in credit portfolios: analytical approximation

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  • Mikhail Voropaev

Abstract

High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The accuracy of the approximation as well as its speed are compared to and shown to be superior to those of Monte Carlo simulation.

Suggested Citation

  • Mikhail Voropaev, 2009. "Variance-covariance based risk allocation in credit portfolios: analytical approximation," Papers 0905.0781, arXiv.org, revised Sep 2009.
    • Handle: RePEc:arx:papers:0905.0781
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    File URL: http://arxiv.org/pdf/0905.0781
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    Cited by:

    1. Bob Ssekiziyivu & Rogers Mwesigwa & Mayengo Joseph & Isaac Nkote Nabeta, 2017. "Credit allocation, risk management and loan portfolio performance of MFIs—A case of Ugandan firms," Cogent Business & Management, Taylor & Francis Journals, vol. 4(1), pages 1374921-137, January.

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