Applying importance sampling for estimating coherent credit risk contributions |
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| Authors: | Sandro Merino Mark A Nyfeler |
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| Institution: | 1. Wealth Management and Business Banking , UBS AG, Head Credit Research , Talacker 30, Zurich , 8001 , Switzerland;2. Credit Portfolio Risk Control , UBS Investment Bank , Stamford , CT , 06901 , USA E-mail: sandro.merino@ubs.com and mark.nyfeler@ubs.com |
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| Abstract: | A Monte Carlo simulation method based on importance sampling is applied to the problem of determining individual risk contributions of the obligors in a credit portfolio. The effectiveness of the method is benchmarked against standard Monte Carlo techniques and the asymptotic optimality of the method is proved. The risk measure adopted is expected shortfall, a particualr coherent risk measure. The concept of a coherent risk spectrum is discussed on the basis of some numerical examples. |
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