Estimating Loss Distribution for a Securitisation Transaction

In the latest edition of The Securitisation & Structured Finance Handbook 2018 (published by Capital Markets Intelligence) Vishal Saxena and Dilip Mohan from IFMR Capital have authored a chapter as part of the publication. The chapter discusses an approach to estimate the loss distribution for a loan portfolio. This loss distribution can be used to calculate the expected loss in an securitisation transaction, loan loss reserves, economic capital and value-at-risk. The authors first derive the limiting distribution of the portfolio loss as presented in papers by Vasicek (1987 & 1991) and then describe how they have extended the model to take care of the non-homogeneous subgroups in the portfolio.

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