KISS approach to credit portfolio modeling

TL;DR

This paper introduces a simple, transparent, and efficient analytical method for multi-factor structural credit portfolio modeling, validated against Monte Carlo simulations, aimed at practitioners seeking practical and high-performance tools.

Contribution

It presents a novel analytical technique for credit portfolio modeling that balances simplicity, accuracy, and ease of implementation, outperforming traditional complex methods.

Findings

The method achieves comparable accuracy to Monte Carlo simulations.

It is easy to implement and interpret for practitioners.

The approach offers high performance with reduced computational effort.

Abstract

A simple, yet reasonably accurate, analytical technique is proposed for multi-factor structural credit portfolio models. The accuracy of the technique is demonstrated by benchmarking against Monte Carlo simulations. The approach presented here may be of high interest to practitioners looking for transparent, intuitive, easy to implement and high performance credit portfolio model.