In recent years new methods and models have been developed to quantify credit risk on a portfolio basis. CreditMetricsTM, CreditRisk, CreditPortfolioView are among the best known and many others are similar to them. At first glance they are quite different in their approaches and methodologies. A comparison of these models especially with regard to their applicability on typical middle market l...

We show that the saddle-point approximation method to quantify the impact of undiversified idiosyncratic risk in a credit portfolio is inappropriate in the presence of double default effects. Specifically, we prove that there does not exist an equivalent formula to the granularity adjustment, that accounts for guarantees, in case of the extended single-factor CreditRisk model. Moreover, in case...

Within the Internal Ratings-Based (IRB) approach of Basel II it is assumed that idiosyncratic risk has been fully diversified away. The impact of undiversified idiosyncratic risk on portfolio Value-at-Risk can be quantified via a granularity adjustment (GA). We provide an analytic formula for the GA in an extended singlefactor CreditRisk setting incorporating double default effects. It accounts...

In the first part of this paper we address the non-coherence of value-at-risk (VaR) as a risk measure in the context of portfolio credit risk, and highlight some problems which follow from this theoretical deficiency. In particular, a realistic demonstration of the non-subadditivity of VaR is given and the possibly nonsensical consequences of VaR-based portfolio optimisation are shown. The seco...

Capital allocation for credit portfolios has two meanings. First, at portfolio level it means to determine capital as a buffer against an unexpected negative cash-flow resulting from credit losses. In this case, the allocation method can be specified by means of a risk measure. Its result is called economic capital of the portfolio. Second, at sub-portfolio or transaction level, capital allocat...

The CreditRisk+ model is one of the industry standards for valuation default risk in credit loans portfolios. calibration requires, inter alia, specification parameters describing structure dependence among events. This work addresses these parameters. In particular, we study procedure on sampling period rate time series, that might be different from horizon onto which used forecasting, as it o...