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1 Sensitivity Analysis of Credit Risk Measures in the Beta Binomial Framework

By Franck Moraux and Universit√© De Rennes

Abstract

This paper reconsiders the Beta Binomial approach for modeling default risk in homogenous credit portfolio. The beta mixing distribution is viewed as a function of the common default probability and the common default correlation. We mainly focus on the correlation parameter and provide closed-form expressions for sensitivities of key credit risk indicators. Sensitivity and elasticity analysis then show that the common default correlation impacts on the credit at risk and expected shortfall quite differently. A final application is performed on CDOs

Year: 2008
OAI identifier: oai:CiteSeerX.psu:10.1.1.353.2280
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