CreditMetrics (version 0.0-2)

cm.portfolio: Computation of simulated portfolio values

Description

cm.portfolio computes simulated portfolio values by using function cm.val.

Usage

cm.portfolio(M, lgd, ead, N, n, r, rho, rating)

Arguments

M

one year empirical migration matrix, where the last row gives the default class.

lgd

loss given default

ead

exposure at default

N

number of companies

n

number of simulated random numbers

r

riskless interest rate

rho

correlation matrix

rating

rating of companies

Value

This functions returns the simulated portfolio values for each scenario.

Details

The simulated portfolio values are computed by using the function cm.val and summing up each column.

References

Glasserman, Paul, Monte Carlo Methods in Financial Engineering, Springer 2004

See Also

cm.matrix, cm.val, colSums

Examples

  N <- 3
  n <- 50000
  r <- 0.03
  ead <- c(4000000, 1000000, 10000000)
  lgd <- 0.45
  rating <- c("BBB", "AA", "B")
  firmnames <- c("firm 1", "firm 2", "firm 3")
  
  # correlation matrix
  rho <- matrix(c(  1, 0.4, 0.6,
                  0.4,   1, 0.5,
                  0.6, 0.5,   1), 3, 3, dimnames = list(firmnames, firmnames),
                  byrow = TRUE)

  # one year empirical migration matrix from standard&poors website 
  rc <- c("AAA", "AA", "A", "BBB", "BB", "B", "CCC", "D")
  M <- matrix(c(90.81,  8.33,  0.68,  0.06,  0.08,  0.02,  0.01,   0.01,
                 0.70, 90.65,  7.79,  0.64,  0.06,  0.13,  0.02,   0.01,
                 0.09,  2.27, 91.05,  5.52,  0.74,  0.26,  0.01,   0.06,
                 0.02,  0.33,  5.95, 85.93,  5.30,  1.17,  1.12,   0.18,
                 0.03,  0.14,  0.67,  7.73, 80.53,  8.84,  1.00,   1.06,
                 0.01,  0.11,  0.24,  0.43,  6.48, 83.46,  4.07,   5.20,
                 0.21,     0,  0.22,  1.30,  2.38, 11.24, 64.86,  19.79,
                    0,     0,     0,     0,     0,     0,     0, 100
              )/100, 8, 8, dimnames = list(rc, rc), byrow = TRUE)
              
  cm.portfolio(M, lgd, ead, N, n, r, rho, rating)