Multi-system Risk Factors CreditRisk+ Model Based on Sector Character

• 1、College of Finance,Hunan University

Abstract：We proposed the multi-system risk factors CreditRisk+ model that based on character of different sectors. The assuption that independence between different sector risk factors is an obvious drawback of the original CreditRisk+ model. The amened model such as the single factor model, the compound gamma CreditRisk+ model and the two stage CreditRisk+ model still have their own problems. In this paper, we introduced multi-system risk factors, and denoted the shape parameter of sector risk factor by linear combination of systematic risk factors multiples a parameter that reflects inner character of sector risk factor, that is a qualitative expansion to CreditRisk+ model. The developed model overcame the problem that inner character of sector risk factor is neglected in two-stage CreditRisk+ model, and derived compatible combination of two-fold systematic and sector risk factors. The new CreditRisk+ model can adopt general covariance matrix of sector risk factors into the framework of the model, thus overcame the prominent drawback that covariances between different sector risk factors are required to be equal in the compound Gamma CreditRisk+ model. We proved in this paper that all those original CreditRisk+ model, compound Gamma CreditRisk+ model and two-stage CreditRisk+ model are just exetreme situations of the new model, and in those extreme situations the covariance matrix of sector risk factors can not be adopted into those models properly, thus will influence the accuracy for calculating unexpected loss.

Keywords： CreditRisk+ model default correlation sector character multi-system risk factors