I develop an algorithm to approximate the loss rate distribution for fixed income portfolios with obligor concentrations. The approximation requires no advanced mathematics or statistics, only the summation of large exposures and the evaluation of binomial probabilities. The approximation is...

Most credit portfolios contain obligor concentration risk and yet international bank regulatory capital rules and many industry models assume perfect diversification. Multiple methods are available to calculate the approximate capital needs of a concentrated credit portfolio, but many of these...