The Integrated Market and Credit Portfolio Model

Abstract

In this chapter, a general integrated market and credit portfolio model is defined, which fits into the broad class of models employing the ‘conditional independence’ assumption. Afterwards, this model is compared with industry standards of credit portfolio models. Finally, a concrete specification of the general integrated market and credit portfolio model is defined, which will later be used for the numerical examples. This model specification is basically the CreditMetrics approach extended by correlated interest rate and credit spread risk.