Expected Shortfall and It´s Application in Credit Risk Measurement

Author

Fan, Yulian ; Li, Guodong ; Zhang, Meng

Author_Institution

Sch. of Sci., North China Univ. of Technol., Beijing, China

fYear

2010

fDate

13-15 Aug. 2010

Firstpage

359

Lastpage

363

Abstract

We study the credit risks of corporate debts using the coherent risk measure of ES(expected shortfall). Under our model, the firms´ value and their volatilities are the solutions of nonlinear equations. We solve the equations by the Newton-Raphson method. With the solutions, we can get the distribution of the firms´ future value. Then we estimate the ES using the Richardson extrapolation method. Compared with the firms´ repayment capability indicators, the risks measured by ES is consist with the real behavior of the firms. This shows the ES measure is effective.

Keywords

Newton-Raphson method; credit transactions; extrapolation; nonlinear equations; risk management; Newton-Raphson method; Richardson extrapolation method; corporate debts; credit risk measurement; expected shortfall; firm future value; firm repayment capability indicators; nonlinear equation solution; Biological system modeling; Economic indicators; Extrapolation; Finance; Instruments; Mathematical model; Nonlinear equations; Newton-Raphson iterative algorithm; Richardson extrapolation method; coherent risk measure; credit risk; option pricing model;

fLanguage

English

Publisher

ieee

Conference_Titel

Business Intelligence and Financial Engineering (BIFE), 2010 Third International Conference on

Conference_Location

Hong Kong

Print_ISBN

978-1-4244-7575-9

Type

conf

DOI

10.1109/BIFE.2010.90

Filename

5621823