Credit portfolios: What defines risk horizons and risk measurement? |
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Authors: | Silvan Ebn ther,Paolo Vanini |
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Affiliation: | aUniversity of Southern Switzerland, CH-6900 Lugano, Switzerland;bZürcher Kantonalbank, Josefstrasse 222, CH-8005 Zürich, Switzerland;cSwiss Banking Institute, University of Zürich, CH-8032 Zürich, Switzerland |
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Abstract: | The strong autocorrelation between economic cycles demands that we analyze credit portfolio risk in a multiperiod setup. We embed a standard one-factor model in such a setup. We discuss the calibration of the model to Standard & Poor’s ratings data in detail. But because single-period risk measures cannot capture the cumulative effects of systematic shocks over several periods, we define an alternative risk measure, which we call the time-conditional expected shortfall (TES), to quantify credit portfolio risk over a multiperiod horizon. |
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Keywords: | Credit-risk management Portfolio management Risk measurement Coherence VaR Expected shortfall Factor model |
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