Expected shortfall in credit portfolios with extremal dependence

Achal Bassamboo*, Sandeep Juneja, Assaf Zeevi

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingConference contribution

2 Scopus citations

Abstract

We consider the risk of a portfolio comprised of loans, bonds, and financial instruments that are subject to possible default. We are interested in efficiently estimating expected excess loss conditioned on the event that the portfolio incurs large losses over a fixed time horizon; this risk measure is often referred to as expected shortfall. We consider a heterogeneous mix of obligors and assume a portfolio dependence structure that supports extremal dependence among obligors and does not hinge solely on correlation. We first derive sharp asymptotics that illustrate the implications of extremal dependence among obligors in the risk of the portfolio. Using this as a stepping stone, we develop a multi-stage importance sampling algorithm that is shown to have bounded relative error in estimating expected shortfall.

Original languageEnglish (US)
Title of host publicationProceedings of the 2005 Winter Simulation Conference
Pages1849-1858
Number of pages10
DOIs
StatePublished - 2005
Event2005 Winter Simulation Conference - Orlando, FL, United States
Duration: Dec 4 2005Dec 7 2005

Publication series

NameProceedings - Winter Simulation Conference
Volume2005
ISSN (Print)0891-7736

Other

Other2005 Winter Simulation Conference
CountryUnited States
CityOrlando, FL
Period12/4/0512/7/05

ASJC Scopus subject areas

  • Software
  • Modeling and Simulation
  • Computer Science Applications

Fingerprint Dive into the research topics of 'Expected shortfall in credit portfolios with extremal dependence'. Together they form a unique fingerprint.

Cite this