Measuring portfolio credit risk correctly: Why parameter uncertainty matters

  • Nikola Tarashev
  • Published 2016

Abstract

Why should risk management systems account for parameter uncertainty? In addressing this question, the paper lets an investor in a credit portfolio face non-diversifiable uncertainty about two risk parameters – probability of default and asset-return correlation – and calibrates this uncertainty to a lower bound on estimation noise. In this context, a… (More)

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