Integrating Market and Credit Risk Using a Simplified Frailty Default Correlation Structure
The Journal of Fixed Income(2007)
摘要
This article adopts a simplified approach to assess the correlation structure of credit risk. The approach could significantly reduce the numbers of estimated parameters in credit risk measurement. Thus it provides a simple way to integrate market risk smoothly that leads to a unified framework for computing fixed-income portfolio Value at Risk (VaR). Furthermore, based on recent research findings that frailty factors could induce a large estimated increase in default clustering, we also consider frailty variables in our integrated model. Using a portfolio as illustration, it is shown that the traditional approach where the correlation of market and credit risk is not considered, or frailty is not accounted for, may under-estimate VaR.
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关键词
credit risk
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