2011/12/30 by R. J. Martin, Martin, Richard J
Decision Sciences · Economics, Econometrics and Finance · #Credit Risk and Financial Regulations #FOS: Economics and business #Portfolio Management (q-fin.PM) #Risk Management (q-fin.RM) #Risk and Portfolio Optimization #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1201.0106
openalex publication_date 2011/12/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We discuss the use of saddlepoint methods in the analysis of portfolios, with particular reference to credit portfolios. The objective is to proceed from a model of the loss distribution, given through probabilities, correlations and the like, to an analytical approximation of the distribution. Once this is done we show how to derive the so-called risk contributions which are the derivatives of risk measures, such as a given quantile (VaR) or expected shortfall, to the allocations in the underlying assets. These show, informally, where the risk is coming from, and also indicate how to go about optimising the portfolio.