Advanced

Valuation and Optimization of Credit Risk using a Portfolio Model

Sidén, Per (2012) FMS820 20122
Mathematical Statistics
Abstract (Swedish)
In this paper I study a model for credit risk in a portfolio of sovereign
bonds, based on (van der Hoorn, 2009). The model is based on historical
credit rating changes and the joint distribution of the losses for dier-
ent bonds is modeled with an assumption of an underlying multivariate
Gaussian variable. Dierent risk measures for the portfolio are calculated
using Monte Carlo simulations and the performance is improved by the
use of importance sampling. I investigate dierent methods on how to
improve the model and the estimation of the parameters of the model. I
also develop methods to valuate the certainty of the risk measures based
on a statistical view on the input data, which give clear indications that
the small size of... (More)
In this paper I study a model for credit risk in a portfolio of sovereign
bonds, based on (van der Hoorn, 2009). The model is based on historical
credit rating changes and the joint distribution of the losses for dier-
ent bonds is modeled with an assumption of an underlying multivariate
Gaussian variable. Dierent risk measures for the portfolio are calculated
using Monte Carlo simulations and the performance is improved by the
use of importance sampling. I investigate dierent methods on how to
improve the model and the estimation of the parameters of the model. I
also develop methods to valuate the certainty of the risk measures based
on a statistical view on the input data, which give clear indications that
the small size of input data gives low accuracy for the risk measures. An
attempt to write an algorithm to nd the optimal portfolio with respect
to the risk measures is also performed and the results are discussed. (Less)
Please use this url to cite or link to this publication:
author
Sidén, Per
supervisor
organization
course
FMS820 20122
year
type
H2 - Master's Degree (Two Years)
subject
language
English
id
3165715
date added to LUP
2012-11-08 10:46:54
date last changed
2012-11-08 10:46:54
@misc{3165715,
  abstract     = {In this paper I study a model for credit risk in a portfolio of sovereign
bonds, based on (van der Hoorn, 2009). The model is based on historical
credit rating changes and the joint distribution of the losses for dier-
ent bonds is modeled with an assumption of an underlying multivariate
Gaussian variable. Dierent risk measures for the portfolio are calculated
using Monte Carlo simulations and the performance is improved by the
use of importance sampling. I investigate dierent methods on how to
improve the model and the estimation of the parameters of the model. I
also develop methods to valuate the certainty of the risk measures based
on a statistical view on the input data, which give clear indications that
the small size of input data gives low accuracy for the risk measures. An
attempt to write an algorithm to nd the optimal portfolio with respect
to the risk measures is also performed and the results are discussed.},
  author       = {Sidén, Per},
  language     = {eng},
  note         = {Student Paper},
  title        = {Valuation and Optimization of Credit Risk using a Portfolio Model},
  year         = {2012},
}