Confidence Intervals for Asset Correlations in the Asymptotic Single Risk Factor Model

摘要

The asymptotic single risk factor (ASRF) model, which has become a standard credit portfolio model in the banking industry, is parameterized by default probabilities and asset (return) correlations. In this model, individual and simultaneous confidence intervals for asset correlations are developed on the basis of observed default rates. Since the length of these confidence intervals depends on the confidence level chosen, they can be used to define stress scenarios for asset correlations.