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Confidence Intervals for Asset Correlations in the Asymptotic Single Risk Factor Model

In: Operations Research Proceedings 2010

Author

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  • Steffi Höse

    (Technische Universität Dresden)

  • Stefan Huschens

    (Technische Universität Dresden)

Abstract

The asymptotic single risk factor (ASRF) model, which has become a standard credit portfolio model in the banking industry, is parameterized by default probabilities and asset (return) correlations. In this model, individual and simultaneous confidence intervals for asset correlations are developed on the basis of observed default rates. Since the length of these confidence intervals depends on the confidence level chosen, they can be used to define stress scenarios for asset correlations.

Suggested Citation

  • Steffi Höse & Stefan Huschens, 2011. "Confidence Intervals for Asset Correlations in the Asymptotic Single Risk Factor Model," Operations Research Proceedings, in: Bo Hu & Karl Morasch & Stefan Pickl & Markus Siegle (ed.), Operations Research Proceedings 2010, pages 111-116, Springer.
    • Handle: RePEc:spr:oprchp:978-3-642-20009-0_18
    DOI: 10.1007/978-3-642-20009-0_18
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    References listed on IDEAS

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    1. repec:uts:ppaper:v:1:y:2007:i:1:p:55-75 is not listed on IDEAS
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    8. Hanson, Samuel & Schuermann, Til, 2006. "Confidence intervals for probabilities of default," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2281-2301, August.
    9. Düllmann, Klaus & Trapp, Monika, 2004. "Systematic Risk in Recovery Rates: An Empirical Analysis of US Corporate Credit Exposures," Discussion Paper Series 2: Banking and Financial Studies 2004,02, Deutsche Bundesbank.
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