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Applying Portfolio Credit Risk Models to Retail Portfolios
Company: Algo Research Quarterly
Company Url: Click here to open
Year Of Publication: 2000
Month Of Publication: March
Pages: 45-74
Download Count: 1513
View Count: 8775
Comment Num: 0
Language: EN
Who Can Read: Free
Date: 12-11-2003
Publisher: Administrator
We present a simulation-based model to estimate the credit loss distribution of retail loan portfolios and apply the model to a sample credit card portfolio of a North American financial institution. Within the portfolio model, we test three default models which describe the joint behavior of default events. The first model is purely descriptive in nature while the other two models are causal models of portfolio credit risk, where the influence of the economic cycle is captured through the correlations of default rates to various macroeconomic factors. The results obtained using all three default models are very similar when they are calibrated to the same historical data. In addition to measuring expected and unexpected losses, we demonstrate how the model also allows risk to be decomposed into its various sources, provides an understanding of concentrations and can be used to test how various economic factors affect portfolio risk.
Bucay, Nisso Sign in to follow this author
Rosen, Dan Sign in to follow this author
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