Approximating Independent Loss Distributions with an Adjusted Binomial Distribution

@inproceedings{OKane2007ApproximatingIL,
  title={Approximating Independent Loss Distributions with an Adjusted Binomial Distribution},
  author={Dominic O’Kane},
  year={2007}
}
  • Dominic O’Kane
  • Published 2007
We describe an approximation methodology for constructing independent loss distributions based on adjusting the binomial distribution. This method can handle both homogeneous and heterogeneous loss portfolios. We find that this simple algorithm provides an excellent fit to the exact distribution for a broad range of correlations and portfolio credit quality. For typical correlations, and homogeneous loss portfolios, the percentage error in the spread is typically 0.04% and usually less. It is… CONTINUE READING

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