Credit Risk

BIS Working Papers No 280 Measuring portfolio credit encounter correctly: why parameter indecision matters by Nikola A. Tarashev fiscal and Economic Department April 2009 JEL classification: G20, G32, C11. Keywords: jibe defaults; Estimation delusion; chance wariness. BIS Working Papers atomic number 18 written by members of the Monetary and Economic Department of the jargon for supranational Settlements, and from m to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and non needfully the views of the BIS. Copies of topics are available from: Bank for International Settlements crush & Communications CH-4002 Basel, Switzerland electronic mail: publications@bis.org Fax: +41 61 280 9100 and +41 61 280 8100 This publication is available on the BIS website (HTHT0HUwww.bis.orgUHT). © Bank for International Se ttlements 2009. All rights reserved. drawing excerpts may be reproduced or translated provided the source is stated. ISSN 1020-0959 (print) ISBN 1682-7678 (online) Measuring Portfolio Credit Risk Correctly: why Parameter Uncertainty Matters? Nikola A.

Tarashev† April 3, 2009 Abstract Why should insecurity management systems account for parameter uncertainty? In order to end point this question, this paper lets an investor in a credit portfolio face non-diversifiable estimation-driven uncertainty near two parameters: probability of default and asset-return correlation. Bayesian evidence reveals that for realistic assumpt ions about the portfolios credit quality and! the information underlying parameter estimates this uncertainty comfortably increases the tail risk perceived by the investor. Since incorporating parameter uncertainty in a measure of tail risk is computationally demanding, the paper nonetheless derives and analyzes a closed-form approximation to such a measure. JEL Classification: G20, G32, C11...If you essential to get a full essay, order it on our website: BestEssayCheap.com

If you want to get a full essay, visit our page: cheap essay