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Efficient Calculation of Expected Shortfall Contributions in Large Credit Portfolios
Year Of Publication: 2007
Month Of Publication: November
Pages: 34
Download Count: 9
View Count: 1485
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 8-18-2013
Publisher: Administrator
Summary
In the framework of a standard structural credit portfolio model, we investigate the Monte Carlo based estimation of capital allocation according to expected shortfall. We develop and analyze several variance reduction techniques based on importance sampling, analytic approximations of portfolio loss distributions and a semi-analytical allocation technique. The focus of the paper is on the application of these techniques to large credit portfolios used in economic capital calculations. Our results show that the inherent numerical problems of expected shortfall allocation can be overcome and, as a consequence, economic capital allocation according to expected shortfall is a viable option for financial institutions.
This document is published in Journal of Computational Finance, 2007 (volume 11), 45-77.
http://www.risk.net/digital_assets/4223/v11n2a1.pdf
Author(s)
Kalkbrener, Michael Sign in to follow this author
Popp, Monika Sign in to follow this author
Kennedy, Anna Sign in to follow this author
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