|
EconStor >
Rheinische Friedrich-Wilhelms-Universität Bonn >
Bonn Graduate School of Economics (BGSE), Universität Bonn >
Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/37029
|
| | |
| Title: | | Failure of saddle-point method in the presence of double defaults  |
| Authors: | | Lütkebohmert, Eva |
| Issue Date: | | 2009 |
| Series/Report no.: | | Bonn econ discussion papers 2009,19 |
| Abstract: | | We show that the saddle-point approximation method to quantify the impact of undiversified idiosyncratic risk in a credit portfolio is inappropriate in the presence of double default effects. Specifically, 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 Credit Risk 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 |
| Appears in Collections: | | Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/37029
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|