The credit risk+ model with general sector correlations
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We consider an enhancement of the credit risk+ model to incorporate correlations between sectors. We model the sector default rates as linear combinations of a common set of independent variables that represent macro-economic variables or risk factors. We also derive the formula for exact VaR contributions at the obligor level.
KeywordsCredit risk+ Compound gamma distribution Value at risk Risk contribution Correlation Portfolio loss distribution Moment generating function
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