Coarse-grained CDOs

While analytical models of credit portfolio risk using conditional independence have been one of the most promising areas of recent research, they often involve granularity assumptions that are violated in CDO reference portfolios. Here, Michael Pykhtin and Ashish Dev lift the usual fine-grained portfolio restriction to calculate CDO loss distributions for coarse-grained reference portfolios. Interestingly, they show that senior tranches are particularly sensitive to the level of granularity

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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