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dc.contributor.authorLütkebohmert, Evaen_US
dc.description.abstractWe 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.en_US
dc.publisherGraduate School of Economics Bonnen_US
dc.relation.ispartofseriesBonn econ discussion papers 2009,19en_US
dc.subject.keywordanalytical approximationen_US
dc.subject.keywordBasel IIen_US
dc.subject.keyworddouble defaulten_US
dc.subject.keywordgranularity adjustmenten_US
dc.subject.keywordIRB approachen_US
dc.subject.keywordsaddle-point approximationen_US
dc.subject.stwHeuristisches Verfahrenen_US
dc.subject.stwBasel IIen_US
dc.titleFailure of saddle-point method in the presence of double defaultsen_US
dc.typeWorking Paperen_US
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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