E the sensitivities of portfolio credit risk with respect to the underlying model parameters is an important problem for credit risk management. In this paper, we consider performance measures that may be expressed as an expectation of a performance function of the portfolio credit loss and derive closed-form expressions of its sensitivities to the underlying parameters. Our results are applica...

We model dynamic credit portfolio dependence by using default contagion in an intensity-based framework. Two different portfolios (with 10 obligors), one in the European auto sector, the other in the European financial sector, are calibrated against their market CDS spreads and the corresponding CDS-correlations. After the calibration, which are perfect for the banking portfolio, and good for t...

We model dynamic credit portfolio dependence by using default contagion in an intensity-based framework. Two different portfolios (with 10 obligors), one in the European auto sector, the other in the European financial sector, are calibrated against their market CDS spreads and the corresponding CDS-correlations. After the calibration, which are perfect for the banking portfolio, and good for t...

The turmoil in the capital markets in 1997 and 1998 has highlighted the need for systematic stress testing of banks’ portfolios, including both their trading and lending books. We propose that underlying macroeconomic volatility is a key part of a useful conceptual framework for stress testing credit portfolios, and that credit migration matrices provide the specific linkages between underlying...

The profitability of any credit card portfolio is influenced by complex interactions between several conflicting factors like credit risk, probability of attrition, propensity to revolve, credit limit utilization and revenue generated. In this context, the allocation and maintenance of appropriate credit limits, and optimum pricing are the most critical parameters, as they affect a number of th...

We consider the problem of concurrent portfolio losses in two non-overlapping credit portfolios. In order to explore the full statistical dependence structure of such portfolio losses, we estimate their empirical pairwise copulas. Instead of a Gaussian dependence, we typically find a strong asymmetry in the copulas. Concurrent large portfolio losses are much more likely than small ones. Studyin...

BSLP is a two-dimensional dynamic model of interacting portfolio-level loss and loss intensity processes. It is constructed as a Markovian, short-rate intensity model, which facilitates fast lattice methods for pricing various portfolio credit derivatives such as tranche options, forward-starting tranches, leveraged super-senior tranches etc. A semiparametric model specification is used to achi...

Recent experience in capital markets has highlighted the need for risk-sensitive portfolio strategies in both domestic investment grade as well as opportunistic high-yield and emerging market portfolios. We have previously developed a fixed-income sector optimization methodology to facilitate tradeoffs between various sectors based on their contribution to the total portfolio return and risk. W...

In contemporary credit portfolio management, the portfolio risk-return analysis of financial instruments using certain downside credit risk measures requires the computation of a set of Pareto-efficient portfolio structures in a non-linear, non-convex setting. For real-world problems, additional constraints, e. g. supervisory capital limits, have to be respected. Particularly for formerly non-t...

In this paper, we propose a novel Two-level Particle Swarm Optimization (TLPSO) to solve the credit portfolio management problem. A two-date credit portfolio managem ent model is considered. The objective of the manager is to minimize the maximum expected loss of the portfolio subject to a given consulting budget constraint. The captured problem is very challenging due to its hierarchical struc...