Parameter estimation, bias correction and uncertainty quantification in the Vasicek credit portfolio model
Pfeuffer M, Nagl M, Fischer M, Rösch D (2020)
Publication Type: Journal article
Publication year: 2020
Journal
Book Volume: 22
Pages Range: 1-30
Journal Issue: 4
Abstract
This paper is devoted to the parameterization of correlations in the Vasicek credit portfolio model. First, we analytically approximate standard errors for value-at-risk and expected shortfall based on the standard errors of intra-cohort correlations. Second, we introduce a novel copula-based maximum likelihood estimator for inter-cohort correlations and derive an analytical expression of the standard errors. Our new approach enhances current methods in terms of both computing time and, most importantly, direct uncertainty quantification. Both contributions can be used to quantify a margin of conservatism, which is required by regulators. Third, we illustrate powerful procedures that reduce the well-known bias of current estimators, showing their favorable properties. Further, an open-source implementation of all estimators in the novel R package AssetCorr is provided and selected estimators are applied to Moody’s Default & Recovery Database.
Authors with CRIS profile
Marius Pfeuffer
Lehrstuhl für Statistik und Ökonometrie
Matthias Fischer
Fachbereich Wirtschaftswissenschaften
Involved external institutions
Germany (DE)How to cite
APA:
Pfeuffer, M., Nagl, M., Fischer, M., & Rösch, D. (2020). Parameter estimation, bias correction and uncertainty quantification in the Vasicek credit portfolio model. The Journal of Risk, 22(4), 1-30. https://dx.doi.org/10.21314/JOR.2020.429
MLA:
Pfeuffer, Marius, et al. "Parameter estimation, bias correction and uncertainty quantification in the Vasicek credit portfolio model." The Journal of Risk 22.4 (2020): 1-30.
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