Journal of Credit Risk
ISSN:
1744-6619 (print)
1755-9723 (online)
Editor-in-chief: Linda Allen and Jens Hilscher
Measuring sectoral diversification in an asymptotic multifactor framework
Dirk Tasche
Abstract
ABSTRACT
We investigate a multifactor extension of the asymptotic single risk factor (ASRF) model that underlies the capital charges of the “Basel II Accord”. In this extended model, it is still possible to derive closed-form solutions for the risk contributions to value-at-risk and expected shortfall. As an application of the risk contribution formulae we introduce a new concept for a diversification measure. The use of this new measure is illustrated by an example calculated with a two-factor model. The results with this model indicate that, thanks to dependence on not fully correlated systematic sectors, there can be a substantial reduction of risk contributions by sectoral diversification effects.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net