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Efficient estimation of large portfolio loss probabilities in t-copula models

Chan, Chi Chun (Joshua); Kroese, Dirk

Description

We consider the problem of accurately measuring the credit risk of a portfolio consisting of loans, bonds and other financial assets. One particular performance measure of interest is the probability of large portfolio losses over a fixed time horizon. We revisit the so-called t-copula that generalizes the popular normal copula to allow for extremal dependence among defaults. By utilizing the asymptotic description of how the rare event occurs, we derive two simple simulation algorithms based...[Show more]

CollectionsANU Research Publications
Date published: 2010
Type: Journal article
URI: http://hdl.handle.net/1885/32919
Source: European Journal of Operational Research
DOI: 10.1016/j.ejor.2010.01.003

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