Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/37029
Year of Publication: 
2009
Series/Report no.: 
Bonn Econ Discussion Papers No. 19/2009
Publisher: 
University of Bonn, Bonn Graduate School of Economics (BGSE), Bonn
Abstract: 
We show that the saddle-point approximation method to quantify the impact of undiversi?ed idiosyncratic risk in a credit portfolio is inappropriate in the presence of double default effects. Speci?cally, 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 of the model underlying the double default treatment within the internal ratings based (IRB) approach of Basel II, the saddle-point equivalent to the GA is too complex and involved to be competitive to a standard Monte Carlo approach.
Subjects: 
analytical approximation
Basel II
double default
granularity adjustment
IRB approach
saddle-point approximation
JEL: 
G31
G28
Document Type: 
Working Paper

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