The saddlepoint method and portfolio optionalities

Richard Martin describes the application of saddlepoint methods to the calculation of tranche payouts and expected shortfall in loss distributions. Aside from computational use in their own right, the resulting formulas motivate a forthcoming discussion on systematic and unsystematic risk in portfolios

This short communication describes the application of saddlepoint methods in the calculation of tranche payouts and expected shortfall (ESF, also known as conditional value-at-risk) from the distribution of portfolio losses. These are closely related quantities that are fundamental to the valuation of collateralised debt obligation tranches (Andersen, Sidenius & Basu, 2003) and credit portfolio management (Martin, 2004). Whereas the density and tail probability are well understood, the latter

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

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

Most read articles loading...

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