Journal of Credit Risk

Risk.net

Computation of VaR and VaR contribution in the Vasicek portfolio credit loss model: a comparative study

Xinzheng Huang, Cornelis W. Oosterlee, Mâcé Mesters

ABSTRACT

We compare various numerical methods for the estimation of the VaR and the marginal VaR contribution (VaRC) in the Vasicek one-factor portfolio credit loss model. The methods we investigate are the normal approximation, the saddlepoint approximation, a simplified saddlepoint approximation and importance sampling. We investigate each method in terms of speed, accuracy and robustness and in particular explore their abilities of dealing with exposure concentration.

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