Template-Type: ReDIF-Paper 1.0
Title: FAILURE OF SADDLE-POINT METHOD IN THE PRESENCE OF DOUBLE DEFAULTS
Author-Name: Eva Lütkebohmert
Author-Email: eva.luetkebohmert@uni-bonn.de 
Classification-JEL: G31, G28
Keywords: analytical approximation, Basel II, double default, granularity adjustment, IRB approach, saddle-
	point approximation
Abstract: We show that the saddle-point approximation method to quantify the impact of undiversi?ed 
	idiosyncratic risk in a credit portfolio is inappropriate in the presence of double default 
	effects. Speci?cally, we prove that there does not exist an equivalent formula to the granularity
	adjustment, that accounts for guarantees, in case of the extended single-factor CreditRisk+ model.
	Moreover, in case of the model underlying the double default treatment within the internal ratings
	based (IRB) approach of Basel II, the saddle-point equivalent to the GA is too complex and involved
	to be competitive to a standard Monte Carlo approach.
Note: 
Length: 9
Creation-Date: 2009-08
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse19_2009.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse19_2009