Lucas, Andre, Pieter Klaassen, Peter Spreij, and Stefan Staetmans (1999). "An analytic approach to credit risk of large corporate bond and loan portfolios." Research Memorandum 1999-18, Vrije Universiteit Amsterdam.  Home/Search   Document Details and Download   Summary   Related Articles

....H 1 (x) # . 6. MULTI FACTOR DEPENDENCE 6.1. Multifactor conditional models without rating transitions. The results of the previous section can be extended to include more than one driving systematic factor for the development of the obligors asset values. The model presented here is similar to Lucas et al. 1999). Assumption 6 (Multifactor Firm s Value Model) The asset values of the firms are driven by a vector Y of J driving factors. Each factor influences the value of the n th firm s assets with a weight of # j n . The weight vector of the n th firm is called # n . Thus (31) V n = J # j=1 # j ....

....mean and variance as the conditional mean and variance of the portfolio: y) N # n=1 n (y) 43) # 2 (y) N # n=1 # 2 n (y) 44) If the number of assets in the portfolio is large (and the individual default probabilities are not too small) this is a good approximation. In Lucas et al. 1999) there is a detailed numerical analysis of the quality of this approximation. Using this approximation the conditional distribution of the portfolio s change in value is the standard normal distribution (45) P [ X # x Y = y ] # # x (y) #(y) # . The unconditional distribution of ....

Lucas, Andre, Pieter Klaassen, Peter Spreij, and Stefan Staetmans (1999). "An analytic approach to credit risk of large corporate bond and loan portfolios." Research Memorandum 1999-18, Vrije Universiteit Amsterdam.

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