Journal of Computational Finance

Risk.net

Credit risk contributions under the Vasicek one-factor model: a fast wavelet expansion approximation

Luis Ortiz-Gracia and Josep J. Masdemont

ABSTRACT

Measuring the contribution of individual transactions inside the total risk of a credit portfolio is a major issue in financial institutions. Value-at-risk (VaR) contributions and expected shortfall (ES) contributions have become two popular ways of quantifying these risks. However, the usual Monte Carlo approach is known to be a very time-consuming method for computing the risk contributions. In this paper, the authors accurately calculate the ES and decompose the VaR and the ES into a sum of risk contributions from individual obligors representing the marginal impact on the total portfolio risk. They take the Vasicek one-factor model as the model framework.

To continue reading...

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 indvidual account here: