Download this Paper Open PDF in Browser

On the Parameterization of the Creditrisk-Plus Model for Estimating Credit Portfolio Risk

24 Pages Posted: 16 Mar 2009  

Antoine Vandendorpe

affiliation not provided to SSRN

Hien Ngoc Ho

affiliation not provided to SSRN

Steven Vanduffel

Vrije Universiteit Brussel (VUB)

Paul Van Dooren

Catholic University of Louvain

Date Written: 2008

Abstract

The Credit Risk model is one of the industry standards for estimating the credit default risk for a portfolio of credit loans.

The natural parameterization of this model requires the default probability to be apportioned using a number of (non-negative) factor loadings. However, in practice only default correlations are often available but not the factor loadings. In this paper we investigate how to deduce the factor loadings from a given set of default correlations.

This is a novel approach and it requires the non-negative factorization of a positive semi-definite matrix which is by no means trivial. We also present a numerical optimization algorithm to achieve this.

Keywords: Basel II, KMV, Asset Correlations, Default Correlations

Suggested Citation

Vandendorpe, Antoine and Ho, Hien Ngoc and Vanduffel, Steven and Van Dooren, Paul, On the Parameterization of the Creditrisk-Plus Model for Estimating Credit Portfolio Risk (2008). Insurance: Mathematics and Economics, Vol. 42, No. 2, 2008. Available at SSRN: https://ssrn.com/abstract=1359580

Antoine Vandendorpe (Contact Author)

affiliation not provided to SSRN ( email )

Hien Ngoc Ho

affiliation not provided to SSRN ( email )

Steven Vanduffel

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
Brussels, Brabant 1050
Belgium

HOME PAGE: http://www.stevenvanduffel.com

Paul Van Dooren

Catholic University of Louvain ( email )

Place Montesquieu, 3
B-1348 Louvain-la-Neuve, 1348
Belgium

Paper statistics

Downloads
418
Rank
57,411
Abstract Views
1,298