Quotation Frey, Rüdiger, McNeil, Alexander. 2002. VaR and expected shortfall in portfolios of dependent credit risks: Conceptual and practical insights. Journal of Banking and Finance 26 1317-1334.




In the first part of this paper we address the non-coherence of value-at-risk (VaR) as a risk measure in the context of portfolio credit risk, and highlight some problems which follow from this theoretical deficiency. In particular, a realistic demonstration of the non-subadditivity of VaR is given and the possibly nonsensical consequences of VaR-based portfolio optimisation are shown. The second part of the paper discusses VaR and expected shortfall estimation for large balanced credit portfolios. All standard industry models (Creditmetrics, KMV, CreditRisk+) are presented as Bernoulli mixture models to facilitate their direct comparison. For homogeneous groups it is shown that measures of tail risk for the loss distribution may be approximated in large portfolios by analysing the tail of the mixture distribution in the Bernoulli representation. An example is given showing that, for portfolios of lower quality, choice of model has some impact on measures of extreme risk. Article Outline


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Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Banking and Finance
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-A, VW-B, WH-A
Language English
Title VaR and expected shortfall in portfolios of dependent credit risks: Conceptual and practical insights
Volume 26
Year 2002
Page from 1317
Page to 1334
URL http://www.sciencedirect.com/science?_ob=PublicationURL&_tockey=%23TOC%235967%232002%23999739992%23326193%23FLA%23&_cdi=5967&_pubType=J&_auth=y&_acct=C000022138&_version=1&_urlVersion=0&_userid=464393&md5=b7dfae0d20a4b23b7fbfb78e48821c7b


Frey, Rüdiger (Details)
McNeil, Alexander
Institute for Statistics and Mathematics IN (Details)
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