December 2015
Intermediate to advanced
368 pages
8h 7m
English
Content preview from Finance, Economics, and Mathematics
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Chapter 18Limiting Loan Loss Probability Distribution
Written in 1989; printed in Derivatives Pricing: The Classic Collection, P. Carr (ed.). London: Risk Books, 2004.
The cumulative probability that the percentage loss on a portfolio of n loans does not exceed 
is
where 
are given by an integral expression in Oldrich Vasicek's memo, “Probability of Loss on Loan Portfolio,” February 1987 (Chapter 17 of this volume). The substitution
in the integral gives 
as
where
By the law of large numbers,
and therefore the cumulative distribution function of loan losses on a very large portfolio is
This is a highly skewed distribution. Its density is
Its mean, median, and mode are given by
The α-quantile, ...
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