Summary
Saddlepoint approximation offers a robust and extremely fast alternative to Panjer recursion for the solution of the CreditRisk+ loss distribution. This chapter shows how saddlepoint approximation can be applied to an extended version of CreditRisk+ that incorporates idiosyncratic severity risk. Regardless of the number of sectors and without any need for discretizing loss exposures, both value-at-risk and expected shortfall are easily calculated.
This chapter draws heavily on the article [14]. The views expressed herein are my own and do not necessarily reflect those of the Board of Governors or its staff. I thank Dirk Tasche for helpful comments.
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Gordy, M.B. (2004). Saddlepoint Approximation. In: Gundlach, M., Lehrbass, F. (eds) CreditRisk+ in the Banking Industry. Springer Finance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-06427-6_7
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DOI: https://doi.org/10.1007/978-3-662-06427-6_7
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