Skip to main content
Mobile
  • Finance, Accounting & Economics
  • Global Business Management
  • Management, Leadership & Organisation
  • Marketing & Sales
  • Strategy
  • Technology & Operations
HS Talks HS Talks
Subjects  
Search
  • Notifications
    Notifications

    No current notifications.

  • User
    Welcome Guest
    You have Limited Access The Business & Management Collection
    Login
    Get Assistance
    Login
    Forgot your password?
    Login via your organisation
    Login via Organisation
    Get Assistance
Finance, Accounting & Economics
Global Business Management
Management, Leadership & Organisation
Marketing & Sales
Strategy
Technology & Operations
Practice paper

The Crash-NIG copula model: Risk measurement and management of credit portfolios

Anna Schlösser and Rudi Zagst
Journal of Risk Management in Financial Institutions, 4 (4), 392-412 (2011)
https://doi.org/10.69554/QFXD5353

Abstract

The one-factor copula models became very popular for modelling dependence in credit portfolios and collateralised debt obligation (CDO) valuation owing to their simplicity. Still, it is also well known that they are too simple for an exact pricing. Nevertheless, it is possible to extend the model in various ways so that it is possible to describe historical correlation behaviour realistically. Such an extension of the one-factor copula model, called the Crash-NIG copula model, is proposed by the authors with the following characteristics: (i) more tail dependence than in the Gaussian case, (ii) consistent term structure dimension, (iii) different rating buckets, relaxing the assumption of a large homogeneous portfolio, and (iv) different correlation regimes. Here the authors demonstrate how to apply this model for generating rating transition and default scenarios of a credit portfolio together with the other relevant risk factors. Repricing of instruments on the simulated scenario paths, that is the most difficult problem for such complex instruments as CDO tranches, can also be done efficiently fast using the same model. Finally, portfolio optimisation can be performed on the derived profit and loss distributions that are shown to be very different from normal.

Keywords: economic scenario generation; CDO; copula; factor model; correlation; default probability; portfolio loss; regime-switching; Hidden Markov Model; portfolio optimisation; mean variance; CVaR

The full article is available to subscribers to the journal.

Already a subscriber? Login or review other options.

Citation

Schlösser, Anna and Zagst, Rudi (2011, September 1). The Crash-NIG copula model: Risk measurement and management of credit portfolios. In the Journal of Risk Management in Financial Institutions, Volume 4, Issue 4. https://doi.org/10.69554/QFXD5353.

Options

  • Download PDF
  • Share this page
    Share This Article
    Messaging
    • Outlook
    • Gmail
    • Yahoo!
    • WhatsApp
    Social
    • Facebook
    • X
    • LinkedIn
    • VKontakte
    Permalink
cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 4 / Issue 4
© Henry Stewart
Publications LLP

The Business & Management Collection

  • ISSN: 2059-7177
  • Contact Us
  • Request Free Trial
  • Recommend to Your Librarian
  • Subscription Information
  • Match Content
  • Share This Collection
  • Embed Options
  • View Quick Start Guide
  • Accessibility

Categories

  • Finance, Accounting & Economics
  • Global Business Management
  • Management, Leadership & Organisation
  • Marketing & Sales
  • Strategy
  • Technology & Operations

Librarian Information

  • General Information
  • MARC Records
  • Discovery Services
  • Onsite & Offsite Access
  • Federated (Shibboleth) Access
  • Usage Statistics
  • Promotional Materials
  • Testimonials

About Us

  • About HSTalks
  • Editors
  • Contact Information
  • About the Journals

HSTalks Home

Follow Us On:

HS Talks
  • Site Requirements
  • Copyright & Permissions
  • Terms
  • Privacy
  • Sitemap
© Copyright Henry Stewart Talks Ltd

Personal Account Required

To use this function, you need to be signed in with a personal account.

If you already have a personal account, please login here.

Otherwise you may sign up now for a personal account.

HS Talks

Cookies and Privacy

We use cookies, and similar tools, to improve the way this site functions, to track browsing patterns and enable marketing. For more information read our cookie policy and privacy policy.

Cookie Settings

How Cookies Are Used

Cookies are of the following types:

  • Essential to make the site function.
  • Used to analyse and improve visitor experience.

For more information see our Cookie Policy.

Some types of cookies can be disabled by you but doing so may adversely affect functionality. Please see below:

(always on)

If you block these cookies or set alerts in your browser parts of the website will not work.

Cookies that provide enhanced functionality and personalisation. If not allowed functionality may be impaired.

Cookies that count and track visits and on website activity enabling us to organise the website to optimise the experience of users. They may be blocked without immediate adverse effect.