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On Partial Defaults in Portfolio Credit Risk : A Poisson Mixture Model Approach

Author

Listed:
  • Weißbach, Rafael
  • von Lieres und Wilkau, Carsten

Abstract

Most credit portfolio models exclusively calculate the loss distribution for a portfolio of performing counterparts. Conservative default definitions cause considerable insecurity about the loss for a long time after the default. We present three approaches to account for defaulted counterparts in the calculation of the economic capital. Two of the approaches are based on the Poisson mixture model CreditRisk+ and derive a loss distribution for an integrated portfolio. The third method treats the portfolio of non-performing exposure separately. All three calculations are supplemented by formulae for contributions of the counterpart to the economic capital.

Suggested Citation

  • Weißbach, Rafael & von Lieres und Wilkau, Carsten, 2005. "On Partial Defaults in Portfolio Credit Risk : A Poisson Mixture Model Approach," Technical Reports 2005,06, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
  • Handle: RePEc:zbw:sfb475:200506
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    References listed on IDEAS

    as
    1. Gordy, Michael B., 2000. "A comparative anatomy of credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 119-149, January.
    2. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
    3. Crouhy, Michel & Galai, Dan & Mark, Robert, 2000. "A comparative analysis of current credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 59-117, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Portfolio credit risk; CreditRisk+; Recovery;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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