Journal of Credit Risk

Risk.net

An extended CreditRisk+ framework for portfolio credit risk management

Chulwoo Han, Jangkoo Kang

ABSTRACT

The independent sector assumption in the CreditRisk+ model has been a major bstacle to its implementation. Attempts to overcome this limitation have not met with much success. This paper proposes an extension of the original model that accommodates a wide range of sector covariance structures. Existing numerical algorithms designed for the original model can be reused with little modification. Case studies demonstrate that our model outperforms other CreditRisk+ variants that allow sector dependency. A simulation version of our model is also introduced, which is in turn used to find an optimal portfolio allocation based on the work of Andersson et al. The simulation error is very small compared with the model's analytic counterpart, and the optimization significantly reduces portfolio credit risk.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here