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Capital allocation for credit portfolios with kernel estimators

[journal article]

Tasche, Dirk

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Abstract Determining contributions by sub-portfolios or single exposures to portfolio-wide economic capital for credit risk is an important risk measurement task. Often economic capital is measured as Value-at-Risk (VaR) of the portfolio loss distribution. For many of the credit portfolio risk models used in practice, the VaR contributions then have to be estimated from Monte Carlo samples. In the context of a partly continuous loss distribution (i.e. continuous except for a positive point mass on zero), we investigate how to combine kernel estimation methods with importance sampling to achieve more efficient (i.e. less volatile) estimation of VaR contributions.
Classification Financial Planning, Accountancy; Economic Statistics, Econometrics, Business Informatics
Method theory application
Free Keywords Credit Risk, Financial Simulation, Monte Carlo Methods, Risk Measures
Document language English
Publication Year 2009
Page/Pages p. 581-595
Journal Quantitative Finance, 9 (2009) 5
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)