The power of the portfolio

Credit portfolio managers, overseeing hundreds or even thousands of counterparties, have much less to go on. Default and recovery statistics exist, but how should their idiosyncrasies be untangled from the economic cycle when estimating counterparty default probabilities? And how do these probabilities interconnect as part of a big portfolio? The answers to these questions – and their impact on economic capital, asset allocation and hedging policy – can spell the difference between the success a

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