A Fast Algorithm for Computing Expected Loan Portfolio Tranche Loss in the Gaussian Factor Model

arXivmath/0506125MaRDI QIDQ6475600FDOQ6475600

Publication date: 7 June 2005

Abstract: We propose a fast algorithm for computing the expected tranche loss in the Gaussian factor model. We test it on a 125 name portfolio with a single factor Gaussian model and show that the algorithm gives accurate results. We choose a 125 name portfolio for our tests because this is the size of the standard DJCDX.NA.HY portfolio. The algorithm proposed here is intended as an alternative to the much slower Moody's FT method.

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