Computation of VaR and VaR Contribution in the Vasicek Portfolio Credit Loss Model: A Comparative Study
by Xinzheng Huang of Delft University of Technology & Rabobank,
Abstract: We compare various numerical methods for the estimation of the VaR and the marginal VaR Contribution (VaRC) in the Vasicek one-factor portfolio credit loss model. The methods we investigate are the normal approximation, the saddlepoint approximation, a simplified saddlepoint approximation and importance sampling. We investigate each method in terms of speed, accuracy and robustness and in particular explore their abilities of dealing with exposure concentration.
Keywords: portfolio credit risk, Value at Risk, VaR contribution, normal approximation, saddlepoint approximation, importance sampling.