This work aims to illustrate an advanced quantitative methodology for measuring the credit risk of a loan portfolio allowing for diversification effects. Also, this methodology can allocate the credit capital coherently to each counterparty in the portfolio. The analytical approach used for...

A drawback of available portfolio credit risk models is that they fail to allow for default risk dependency across loans other than through common risk factors. Thereby, thesemodels ignore that close ties can exist between companies due to legal, financial and business relations. In this paper,...

This paper seeks to identify computationally efficient importance sampling (IS) algorithms for estimating large deviation probabilities for the loss on a portfolio of loans. Related literature typically assumes that realised losses on defaulted loans can be predicted with certainty, i.e., that...

The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence, it is of utmost importance to study the mutual dependence of losses for different creditors in the case of large, overlapping credit portfolios. We...

Using a limiting approach to portfolio credit risk, we obtain analyticexpressions for the tail behavior of the distribution of credit losses. We showthat in many cases of practical interest the distribution of these losses haspolynomial ('fat') rather than exponential ('thin') tails. Our...