Accurate allocation of risk capital in credit portfolios

Jan Kwiatkowski, Daniel James Burridge

Research output: Contribution to journalArticlepeer-review


We develop a methodology for computing and allocating risk capital for credit portfolios. We use Bayes’ theorem to express the distribution of loss from exposure to individual assets, given a range of portfolio losses, in terms of the distribution of portfolio loss conditional on the individual assets having defaulted. We consider portfolios of corporate and tranched asset-backed securities subject to losses from default and rating down grades. We use the recursive algorithm of Andersen et al (2003) for discretized losses from credit exposures that are independent conditional on the values of a set of risk factors
Original languageEnglish
Pages (from-to)21-46
JournalJournal of Credit Risk
Issue number1
Publication statusPublished - 2008


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