Journal of Credit Risk

Risk.net

Modelling sector correlations with CreditRisk+: The common background vector model

Matthias Fischer, Christian Dietz

ABSTRACT

A generalized correlation model within the CreditRiskC framework that allows us to rebuild different types of correlation structures and that generalizes the approach of Han and Kang is introduced in this paper. Moreover, it can be translated into the classical Credit Suisse Financial Products framework. Empirical results show that, in particular, the risk contributions of individual borrowers (derived from our new model) are more accurate than in other CreditRiskC specifications.

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