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The credit risk+ model with general sector correlations

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Abstract

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.

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Authors and Affiliations

  1. Department of Operations Research, North Carolina State University, Raleigh, NC, USA

    Amogh Deshpande

  2. Department of Mathematics, Indian Institute of Science, Bangalore, India

    Srikanth K. Iyer

Authors
  1. Amogh Deshpande
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  2. Srikanth K. Iyer
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Correspondence to Srikanth K. Iyer.

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Deshpande, A., Iyer, S.K. The credit risk+ model with general sector correlations. Cent Eur J Oper Res 17, 219–228 (2009). https://doi.org/10.1007/s10100-009-0084-4

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  • DOI: https://doi.org/10.1007/s10100-009-0084-4

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