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A Fast Algorithm for Computing Expected Loan Portfolio Tranche Loss in the Gaussian Factor Model

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  • Pavel Okunev
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    Abstract

    We propose a fast algorithm for computing the expected tranche loss in the Gaussian factor model. We test it on a 125 name portfolio with a single factor Gaussian model and show that the algorithm gives accurate results. We choose a 125 name portfolio for our tests because this is the size of the standard DJCDX.NA.HY portfolio. The algorithm proposed here is intended as an alternative to the much slower Moody's FT method.

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    File URL: http://arxiv.org/pdf/math/0506125
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number math/0506125.

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    Date of creation: Jun 2005
    Date of revision: Jun 2005
    Handle: RePEc:arx:papers:math/0506125

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    Web page: http://arxiv.org/

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    Cited by:
    1. Pavel Okunev, 2005. "Using Hermite Expansions for Fast and Arbitrarily Accurate Computation of the Expected Loss of a Loan Portfolio Tranche in the Gaussian Factor Model," Finance 0506015, EconWPA.
    2. Pavel Okunev, 2005. "Fast Computation of the Economic Capital, the Value at Risk and the Greeks of a Loan Portfolio in the Gaussian Factor Model," Risk and Insurance 0507004, EconWPA.

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