Journal of Credit Risk

Risk.net

Accurate allocation of risk capital in credit portfolios

Jan W. Kwiatkowski, D. James Burridge

ABSTRACT

We develop a methodology for computing and allocating risk capital for credit portfolios. We use Bayes’ theorem to express the distribution of loss from exposure to individual assets, given a range of portfolio losses, in terms of the distribution of portfolio loss conditional on the individual assets having defaulted. We consider portfolios of corporate and tranched asset-backed securities subject to losses from default and rating downgrades. We use the recursive algorithm of Andersen et al (2003) for discretized losses from credit exposures that are independent conditional on the values of a set of risk factors.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here