?url_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Adc&rft.relation=http%3A%2F%2Fmiis.maths.ox.ac.uk%2Fmiis%2F172%2F&rft.title=Monte+Carlo+Simulation+in+the+Integrated+Market+and+Credit+Portfolio+Model&rft.creator=Kane%2C+Selly&rft.creator=Krupp%2C+Viktoria&rft.creator=Macki%2C+Jack&rft.subject=Finance&rft.description=Credit+granting+institutions+deal+with+large+portfolios+of+assets.+These+assets+represent+credit+granted+to+obligors+as+well+as+investments+in+securities.+A+common+size+for+such+a+portfolio+lies+from+anywhere+between+400+to+10%2C000+instruments.%0A%0AThe+essential+goal+of+the+credit+institution+is+to+minimize+their+losses+due+to+default.+By+default+we+mean+any+event+causing+an+asset+to+stop+producing+income.+This+can+be+the+closure+of+a+stock+as+well+as+the+inability+of+an+obligor+to+pay+their+debt%2C+or+even+an+obligor's+decision+to+pay+out+all+his+debt.%0A%0AMinimizing+the+combined+losses+of+a+credit+portfolio+is+not+a+deterministic+problem+with+one+clean+solution.+The+large+number+of+factors+influencing+each+obligor%2C+different+market+sectors%2C+their+interactions+and+trends%2C+etc.+are+more+commonly+dealt+with+in+terms+of+statistical+measures.+Such+include+the+expectation+of+return+and+the+volatility+of+each+asset+associated+with+a+given+time+horizon.%0A%0AIn+this+sense%2C+we+consider+in+the+following+the+expected+loss+and+risk+associated+with+the+assets+in+a+credit+portfolio+over+a+given+time+horizon+of+(typically)+10+to+30+years.+We+use+a+Monte+Carlo+approach+to+simulate+the+loss+of+a+portfolio+in+multiple+scenarios%2C+which+leads+to+a+distribution+function+for+the+expected+loss+of+the+portfolio+over+that+time+horizon.+Second%2C+we+compare+the+results+of+the+simulation+to+a+Gaussian+approximation+obtained+via+the+Lindeberg-Feller+Theorem.+Consistent+with+our+expectations%2C+the+Gaussian+approximation+compares+well+with+a+Monte+Carlo+simulation+in+case+of+a+portfolio+of+very+risky+assets.%0A%0AUsing+a+model+which+produces+a+distribution+of+expected+losses+allows+credit+institutions+to+estimate+their+maximum+expected+loss+with+a+certain+confidence+interval.+This+in+turn+helps+in+taking+important+decisions+about+whether+to+grant+credit+to+an+obligor%2C+to+exercise+options+or+otherwise+take+advantage+of+sophisticated+securities+to+minimize+losses.+Ultimately%2C+this+leads+to+the+process+of+credit+risk+management.&rft.date=2001&rft.type=Study+Group+Report&rft.type=NonPeerReviewed&rft.format=application%2Fpdf&rft.language=en&rft.identifier=http%3A%2F%2Fmiis.maths.ox.ac.uk%2Fmiis%2F172%2F1%2Falgorithmics.pdf&rft.identifier=++Kane%2C+Selly+and+Krupp%2C+Viktoria+and+Macki%2C+Jack++(2001)+Monte+Carlo+Simulation+in+the+Integrated+Market+and+Credit+Portfolio+Model.++%5BStudy+Group+Report%5D+++++