A Factor Model for the Calculation of Portfolio Credit VaR

Ping Li, Xiaoxu Wang, Haibo Wang
2013 Procedia Computer Science  
In nowadays financial institutions pay more and more attention to credit risk. The default correlation between credit instruments has a fatal influence on credit risk. In this paper, we use the factor copula model to calculate the credit VaR (value at risk) for the target portfolio. We first use the asset value obtained from Merton model to substitute the equity price which is used by most researchers. Then we employ the principal component analysis method to construct a virtual variable
more » ... ual variable representing the macro factor, and estimate the VaR for a credit portfolio.
doi:10.1016/j.procs.2013.05.079 fatcat:vjduztzqind2bjts7bw53x6yma