PPT Slide
Correlated credit events such as defaults can be studied and analyzed in
a closed form fashion without the need of simulations.
N: The number of different types of exposures. The type of the
exposure could be based on the rating of the exposure (A or BB, for
example), the sector of the exposure (banking or aerospace, for
example), or the geographical region or a combination of all three.
ni: The number of exposures of the ith asset type.
eik: The dollar amount of the kth exposure of the ith asset type.
pi: The probability of default for assets of ith type.
cij: The default correlation between exposures of ith type and jth type.
qij: The joint default probability of an exposure of type i and an
exposure of type j. Given the definitions above, the following