AAA
AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BBB+
B
BCCC
CC
C
D
AA+
AA
AAA+
A
1 -0.221469 -0.026234 0.159216 -0.439514 0.418835
-0.221469
1 -0.400079 0.130926 0.504239 -0.437565
-0.026234 -0.400079
1 -0.200044 -0.42215 0.029871
0.159216 0.130926 -0.200044
1 -0.149215 0.175206
-0.439514 0.504239 -0.42215 -0.149215
1 -0.430781
0.418835 -0.437565 0.029871 0.175206 -0.430781
1
0.097666 -0.152319 -0.111567 0.191413 -0.084181 -0.046132
0.154118 0.026505 -0.084162 -0.174854 0.050415 0.001251
-0.323569 -0.044736 -0.079142 -0.285228 -0.128826 -0.091871
-0.086489 0.047081 0.334236 -0.459798 -0.181328 -0.108437
0.050834 0.442359 0.027835 0.301268 0.25393 -0.03343
-0.160272 0.393919 -0.018508 -0.293427 0.288466 -0.571755
0.333603 -0.279666 -0.003253 -0.098089 -0.266839 0.424545
0.101052 -0.105336 0.154094 0.084153 -0.164327 0.109272
-0.341577 0.097582 -0.388015 0.242895 0.278864 -0.347539
0.30949 -0.097848 -0.196846 -0.066005 -0.027515 0.018221
-0.180964 0.214972 -0.561372 0.021149 0.447572 0.001357
-0.205203 0.264025 0.399391 -0.400094
-0.0677 -0.369367
-0.085844 -0.342725 0.168028 0.021892 -0.120907 0.418644
-0.145956 -0.198552 0.185424 -0.068713 0.243997 -0.559393
ABBB+
BBB
BBBBB+
BB
BBB+
0.097666 0.154118 -0.323569 -0.086489 0.050834 -0.160272 0.333603 0.101052
-0.152319 0.026505 -0.044736 0.047081 0.442359 0.393919 -0.279666 -0.105336
-0.111567 -0.084162 -0.079142 0.334236 0.027835 -0.018508 -0.003253 0.154094
0.191413 -0.174854 -0.285228 -0.459798 0.301268 -0.293427 -0.098089 0.084153
-0.084181 0.050415 -0.128826 -0.181328 0.25393 0.288466 -0.266839 -0.164327
-0.046132 0.001251 -0.091871 -0.108437 -0.03343 -0.571755 0.424545 0.109272
1 0.106055 0.023038 -0.20305 -0.16966 0.346112 -0.062289 0.126506
0.106055
1 -0.056925 0.188582 -0.092546 -0.123474 0.005464 0.241065
0.023038 -0.056925
1 0.281697 -0.480999 0.095786 -0.159101 -0.002308
-0.20305 0.188582 0.281697
1 -0.128102 0.107321 0.233652 0.233549
-0.16966 -0.092546 -0.480999 -0.128102
1 0.10205 -0.056823 -0.215487
0.346112 -0.123474 0.095786 0.107321 0.10205
1 -0.195978 -0.17217
-0.062289 0.005464 -0.159101 0.233652 -0.056823 -0.195978
1 -0.231073
0.126506 0.241065 -0.002308 0.233549 -0.215487 -0.17217 -0.231073
1
0.042208 -0.06337 0.134021 -0.118182 0.117481 0.134848 -0.193863 -0.053367
0.345361 -0.04959 -0.161326 0.106726 -0.193106 0.102566 0.540138 -0.178826
0.118009 -0.027263 0.057301 0.003567 0.190519 0.132642 0.030292 -0.233715
-0.224965 0.049367 -0.087056 0.586065 0.168721 0.283922 -0.128237 -0.056735
-0.548688 -0.241491 0.06272 0.032882 -0.027682 -0.637184 0.262175 -0.068401
0.00735 -0.028092 -0.162457 -0.204208 -0.010417 0.147556 -0.341318 -0.224112
B
BCCC
CC
C
D
-0.341577 0.30949 -0.180964 -0.205203 -0.085844 -0.145956
0.097582 -0.097848 0.214972 0.264025 -0.342725 -0.198552
-0.388015 -0.196846 -0.561372 0.399391 0.168028 0.185424
0.242895 -0.066005 0.021149 -0.400094 0.021892 -0.068713
0.278864 -0.027515 0.447572
-0.0677 -0.120907 0.243997
-0.347539 0.018221 0.001357 -0.369367 0.418644 -0.559393
0.042208 0.345361 0.118009 -0.224965 -0.548688 0.00735
-0.06337 -0.04959 -0.027263 0.049367 -0.241491 -0.028092
0.134021 -0.161326 0.057301 -0.087056 0.06272 -0.162457
-0.118182 0.106726 0.003567 0.586065 0.032882 -0.204208
0.117481 -0.193106 0.190519 0.168721 -0.027682 -0.010417
0.134848 0.102566 0.132642 0.283922 -0.637184 0.147556
-0.193863 0.540138 0.030292 -0.128237 0.262175 -0.341318
-0.053367 -0.178826 -0.233715 -0.056735 -0.068401 -0.224112
1 0.070097 0.539935 -0.089492 -0.224127 0.213711
0.070097
1 0.161094 0.106431 -0.259159 -0.136353
0.539935 0.161094
1 -0.214003 -0.241348 -0.088101
-0.089492 0.106431 -0.214003
1 -0.144815 0.083323
-0.224127 -0.259159 -0.241348 -0.144815
1 -0.123524
0.213711 -0.136353 -0.088101 0.083323 -0.123524
1
[Link] Exposure
Weights PD
AAA
1,154,172.76
1.34%
0.00%
AA+
7,465,389.06
8.69%
0.03%
AA
3,230,347.74
3.76%
0.03%
AA2,454,446.60
2.86%
0.03%
A+
6,865,322.46
7.99%
0.70%
A
1,534,429.39
1.79%
0.70%
A663,563.63
0.77%
0.70%
BBB+
5,761,189.94
6.70%
1.48%
BBB
1,064,356.08
1.24%
1.48%
BBB1,807,724.13
2.10%
1.48%
BB+
1,557,220.48
1.81%
4.98%
BB
6,511,702.91
7.58%
4.98%
BB6,752,740.90
7.86%
4.98%
B+
9,425,868.83
10.97%
8.86%
B
8,028,625.15
9.34%
8.86%
B622,731.35
0.72%
8.86%
CCC
9,037,938.96
10.52%
18.89%
CC
37,663.26
0.04%
18.89%
C
9,456,525.20
11.00%
18.89%
D
2,516,245.06
2.93%
100%
Total exposure
85,948,203.90
Krishnan Chari:
To note
1) In the absence of any real market
Theory. The algorithm for generating
2. As we generated a synthetic Rand
individual asset exposure level. This
3. In reality, Banks may never acheiv
4. However this template enables th
credit corrrelations
LGD
[Link] [Link]
10%
0%
0
10%
0%
0.00029991
10%
0%
0.00029991
20%
0%
0.00029991
45%
7%
0.006951
60%
8%
0.006951
60%
10%
0.006951
60%
10%
0.01458096
60%
10%
0.01458096
75%
10%
0.01458096
75%
10%
0.04731996
75%
10%
0.04731996
75%
10%
0.04731996
75%
10%
0.08075004
75%
10%
0.08075004
75%
10%
0.08075004
90%
10%
0.15321679
90%
10%
0.15321679
95%
10%
0.15321679
100%
10%
0
Krishnan Chari:
To note
1) In the absence of any real market Default correlation data , a definite positive correlation matrix has been simulated with the he
Theory. The algorithm for generating Random Matrices using Eigen values are available in opensoure R platforms also.
2. As we generated a synthetic Random Matrice with sufficient negative correlations between rating categories, the Credit VaR at
individual asset exposure level. This situation arises as the synthetic correlation matrix has negative correlation numbers in equal
3. In reality, Banks may never acheive this level of diversification.
4. However this template enables the Bank to calibrate an internal credit correlations matrix and use the same in the mdoel to gen
credit corrrelations
[Link]
223.96
96.91
147.27
21,625.77
6,444.60
2,786.97
51,159.37
9,451.48
20,065.74
58,162.19
243,212.10
252,214.87
626,348.98
533,502.14
41,380.50
1,536,540.00
6,403.13
1,697,020.73
2,516,245.06
7,623,031.77
Undiversified VaR
Diversified VaR ( Factoring
default Asset correlations)
Expected Losses
Economic Capital
[Link]([Link]=0)
12,928.49
5,594.29
8,501.18
299,061.63
84,913.17
37,550.67
472,598.30
87,310.59
177,872.98
276,806.52
1,157,499.43
1,200,345.57
2,196,083.77
1,870,547.29
145,086.91
3,417,674.84
14,242.27
3,748,986.35
795,706.55
16,009,310.79
16,009,310.79
4,946,279.50
7,623,031.77
-2,676,752.27
e positive correlation matrix has been simulated with the help of MATLAB functions using Random Matrix
ues are available in opensoure R platforms also.
e correlations between rating categories, the Credit VaR at portfolio level is lesser than the expected losses at
orrelation matrix has negative correlation numbers in equal symmetry thereby creating an ideal diversification.
dit correlations matrix and use the same in the mdoel to generate Portfolio Credit Risk using default or asset
Random Matrix
expected losses at
ideal diversification.
g default or asset
AAA
AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BBB+
B
BCCC
CC
C
D
AA+
1.00
-0.22
-0.03
0.16
-0.44
0.42
0.10
0.15
-0.32
-0.09
0.05
-0.16
0.33
0.10
-0.34
0.31
-0.18
-0.21
-0.09
-0.15
AA
-0.22
1.00
-0.40
0.13
0.50
-0.44
-0.15
0.03
-0.04
0.05
0.44
0.39
-0.28
-0.11
0.10
-0.10
0.21
0.26
-0.34
-0.20
AA-0.03
-0.40
1.00
-0.20
-0.42
0.03
-0.11
-0.08
-0.08
0.33
0.03
-0.02
0.00
0.15
-0.39
-0.20
-0.56
0.40
0.17
0.19
A+
0.16
0.13
-0.20
1.00
-0.15
0.18
0.19
-0.17
-0.29
-0.46
0.30
-0.29
-0.10
0.08
0.24
-0.07
0.02
-0.40
0.02
-0.07
A
-0.44
0.50
-0.42
-0.15
1.00
-0.43
-0.08
0.05
-0.13
-0.18
0.25
0.29
-0.27
-0.16
0.28
-0.03
0.45
-0.07
-0.12
0.24
0.42
-0.44
0.03
0.18
-0.43
1.00
-0.05
0.00
-0.09
-0.11
-0.03
-0.57
0.42
0.11
-0.35
0.02
0.00
-0.37
0.42
-0.56
A-
BBB+
0.10
-0.15
-0.11
0.19
-0.08
-0.05
1.00
0.11
0.02
-0.20
-0.17
0.35
-0.06
0.13
0.04
0.35
0.12
-0.22
-0.55
0.01
0.15
0.03
-0.08
-0.17
0.05
0.00
0.11
1.00
-0.06
0.19
-0.09
-0.12
0.01
0.24
-0.06
-0.05
-0.03
0.05
-0.24
-0.03
BBB
BBB-0.32
-0.04
-0.08
-0.29
-0.13
-0.09
0.02
-0.06
1.00
0.28
-0.48
0.10
-0.16
0.00
0.13
-0.16
0.06
-0.09
0.06
-0.16
BB+
-0.09
0.05
0.33
-0.46
-0.18
-0.11
-0.20
0.19
0.28
1.00
-0.13
0.11
0.23
0.23
-0.12
0.11
0.00
0.59
0.03
-0.20
BB
0.05
0.44
0.03
0.30
0.25
-0.03
-0.17
-0.09
-0.48
-0.13
1.00
0.10
-0.06
-0.22
0.12
-0.19
0.19
0.17
-0.03
-0.01
BB-0.16
0.39
-0.02
-0.29
0.29
-0.57
0.35
-0.12
0.10
0.11
0.10
1.00
-0.20
-0.17
0.13
0.10
0.13
0.28
-0.64
0.15
B+
0.33
-0.28
0.00
-0.10
-0.27
0.42
-0.06
0.01
-0.16
0.23
-0.06
-0.20
1.00
-0.23
-0.19
0.54
0.03
-0.13
0.26
-0.34
0.10
-0.11
0.15
0.08
-0.16
0.11
0.13
0.24
0.00
0.23
-0.22
-0.17
-0.23
1.00
-0.05
-0.18
-0.23
-0.06
-0.07
-0.22
B-0.34
0.10
-0.39
0.24
0.28
-0.35
0.04
-0.06
0.13
-0.12
0.12
0.13
-0.19
-0.05
1.00
0.07
0.54
-0.09
-0.22
0.21
CCC
0.31
-0.10
-0.20
-0.07
-0.03
0.02
0.35
-0.05
-0.16
0.11
-0.19
0.10
0.54
-0.18
0.07
1.00
0.16
0.11
-0.26
-0.14
CC
-0.18
0.21
-0.56
0.02
0.45
0.00
0.12
-0.03
0.06
0.00
0.19
0.13
0.03
-0.23
0.54
0.16
1.00
-0.21
-0.24
-0.09
C
-0.21
0.26
0.40
-0.40
-0.07
-0.37
-0.22
0.05
-0.09
0.59
0.17
0.28
-0.13
-0.06
-0.09
0.11
-0.21
1.00
-0.14
0.08
D
-0.09
-0.34
0.17
0.02
-0.12
0.42
-0.55
-0.24
0.06
0.03
-0.03
-0.64
0.26
-0.07
-0.22
-0.26
-0.24
-0.14
1.00
-0.12
-0.15
-0.20
0.19
-0.07
0.24
-0.56
0.01
-0.03
-0.16
-0.20
-0.01
0.15
-0.34
-0.22
0.21
-0.14
-0.09
0.08
-0.12
1.00
Vt
0.00
12928.49
5594.29
1.00
-0.22
-0.03
0.16
-0.44
0.42
0.10
0.15
-0.32
-0.09
0.05
-0.16
0.33
0.10
-0.34
0.31
-0.18
-0.21
-0.09
-0.15
-0.22
1.00
-0.40
0.13
0.50
-0.44
-0.15
0.03
-0.04
0.05
0.44
0.39
-0.28
-0.11
0.10
-0.10
0.21
0.26
-0.34
-0.20
-0.03
-0.40
1.00
-0.20
-0.42
0.03
-0.11
-0.08
-0.08
0.33
0.03
-0.02
0.00
0.15
-0.39
-0.20
-0.56
0.40
0.17
0.19
-1267148.07 -387952.7
-1685416
1x20
Result 1
Resultant 1x1
20X1
0.00
12928.49
5594.29
8501.18
299061.63
84913.17
37550.67
472598.30
87310.59
177872.98
276806.52
1157499.43
SQRT
1200345.57
2196083.77
1870547.29
145086.91
3417674.84
14242.27
3748986.35
795706.55
8501.18 299061.63
0.16
0.13
-0.20
1.00
-0.15
0.18
0.19
-0.17
-0.29
-0.46
0.30
-0.29
-0.10
0.08
0.24
-0.07
0.02
-0.40
0.02
-0.07
-0.44
0.50
-0.42
-0.15
1.00
-0.43
-0.08
0.05
-0.13
-0.18
0.25
0.29
-0.27
-0.16
0.28
-0.03
0.45
-0.07
-0.12
0.24
84913.17
0.42
-0.44
0.03
0.18
-0.43
1.00
-0.05
0.00
-0.09
-0.11
-0.03
-0.57
0.42
0.11
-0.35
0.02
0.00
-0.37
0.42
-0.56
146756.739512549 1752750.6 478456.66
24465680907263.90
4,946,279.5015
Comment
Portfolio diversified VAR=Unexpected Losses after
taking into account Default Correlations/Asset
Correlations
Due to non availability of true default correlations
across rating grades or asset classes, Correlation
Matrice was generated under suitable constraints using
the Random Matrix Theory and simulation using
MATLAB function
37550.67 472598.30
0.10
-0.15
-0.11
0.19
-0.08
-0.05
1.00
0.11
0.02
-0.20
-0.17
0.35
-0.06
0.13
0.04
0.35
0.12
-0.22
-0.55
0.01
0.15
0.03
-0.08
-0.17
0.05
0.00
0.11
1.00
-0.06
0.19
-0.09
-0.12
0.01
0.24
-0.06
-0.05
-0.03
0.05
-0.24
-0.03
87310.59 177872.98 276806.52
-0.32
-0.04
-0.08
-0.29
-0.13
-0.09
0.02
-0.06
1.00
0.28
-0.48
0.10
-0.16
0.00
0.13
-0.16
0.06
-0.09
0.06
-0.16
-0.09
0.05
0.33
-0.46
-0.18
-0.11
-0.20
0.19
0.28
1.00
-0.13
0.11
0.23
0.23
-0.12
0.11
0.00
0.59
0.03
-0.20
0.05
0.44
0.03
0.30
0.25
-0.03
-0.17
-0.09
-0.48
-0.13
1.00
0.10
-0.06
-0.22
0.12
-0.19
0.19
0.17
-0.03
-0.01
1157499.43
-0.16
0.39
-0.02
-0.29
0.29
-0.57
0.35
-0.12
0.10
0.11
0.10
1.00
-0.20
-0.17
0.13
0.10
0.13
0.28
-0.64
0.15
-941789.84 -259760.22 371044.29 876962.71 553343.65 -952177.81786
1200345.57 2196083.77 1870547.29
0.33
-0.28
0.00
-0.10
-0.27
0.42
-0.06
0.01
-0.16
0.23
-0.06
-0.20
1.00
-0.23
-0.19
0.54
0.03
-0.13
0.26
-0.34
0.10
-0.11
0.15
0.08
-0.16
0.11
0.13
0.24
0.00
0.23
-0.22
-0.17
-0.23
1.00
-0.05
-0.18
-0.23
-0.06
-0.07
-0.22
-0.34
0.10
-0.39
0.24
0.28
-0.35
0.04
-0.06
0.13
-0.12
0.12
0.13
-0.19
-0.05
1.00
0.07
0.54
-0.09
-0.22
0.21
145086.91 3417674.84
0.31
-0.10
-0.20
-0.07
-0.03
0.02
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