Dependent Risk Factors

As an extension to the standard CreditRisk+ model we discuss two multivariate factor distributions, which include factor correlations. The moment-generating functions (MGFs) of both distributions have a simple analytical form, which fits into the framework of Chapter 6 so that the nested evaluation recursion scheme can be applied. We show how the parameters of the new distributions can be fitted to an externally given covariance matrix for the risk factors. With the example of a test portfolio we compare the new models with a single-factor approach to correlation, which has been proposed in [1].