A Fast Algorithm for Computing Expected Loan Portfolio Tranche Loss in the Gaussian Factor Model
AbstractWe 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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Bibliographic InfoPaper provided by EconWPA in its series Risk and Insurance with number 0506002.
Length: 6 pages
Date of creation: 07 Jun 2005
Date of revision:
Note: Type of Document - pdf; pages: 6
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Moody's Fourier Transform method; portfolio loss distribution; DJCDX; CDS portfolio; CDS; expected tranche loss;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-CMP-2005-06-14 (Computational Economics)
- NEP-RMG-2005-06-14 (Risk Management)
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- 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.
- 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.
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