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Copulas and Credit Models
Year Of Publication: 2001
Month Of Publication: October
Pages: 8
Download Count: 1852
View Count: 9552
Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 6-18-2004
Publisher: Administrator
Summary
In this article we focus on the latent variable approach to modelling credit portfoliolosses. This methodology underlies all models that descend from Merton's rm-valuemodel (Merton 1974). In particular, it underlies the most important industry models,such as the model proposed by the KMV corporation and CreditMetrics.A core assumption of the KMV and CreditMetrics models is the multivariate normalityof the latent variables. However there is no compelling reason for choosing a multivariatenormal (Gaussian) distribution for asset values. The aim of this article is to show thatthe aggregate portfolio loss distribution is often very sensitive to the exact nature of themultivariate distribution of the latent variables.
Author(s)
Frey, Rudiger Sign in to follow this author
McNeil, Alexander Sign in to follow this author
Nyfeler, Mark A. Sign in to follow this author
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