A simple credit risk model with individual and collective components

Barth, Jörn

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URL: https://ub-madoc.bib.uni-mannheim.de/262
URN: urn:nbn:de:bsz:180-madoc-2627
Document Type: Working paper
Year of publication: 1999
The title of a journal, publication series: Mannheimer Manuskripte zu Risikotheorie, Portfolio Management und Versicherungswirtschaft
Volume: 113
Place of publication: Mannheim
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Risikotheorie, Portfolio Management und Versicherungswirtschaft (Albrecht) > Mannheimer Manuskripte zu Risikotheorie, Portfolio Management und Versicherungswirtschaft
Subject: 330 Economics
Subject headings (SWD): Kreditrisiko , Mathematisches Modell
Abstract: A model for the credit risk of a portfolio of market driven financial contracts (for example swaps) is introduced. The viewpoint of the financial institution who holds this portfolio is taken. The default intensity of a single counterparty is assumed to write as a sum of two parts: An individual component is unknown and modelled as noise, the collective component is known and dependent on market variables (like the interest rate). The influence of the credit events to the market variables is neglected. The advantage of this model is given by the possibility to consider the statistic of the credit events conditioned on a market situation. By taking a functional like the expectation value of this conditional statistic only the market variables remain stochastic. Therefore this model is especially suited for measuring the impact of the market variables onto the credit risk.

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