PT  - JOURNAL ARTICLE
AU  - Paul Glasserman
TI  - Tail Approximations for Portfolio Credit Risk
AID  - 10.3905/jod.2004.450966
DP  - 2004 Nov 30
TA  - The Journal of Derivatives
PG  - 24--42
VI  - 12
IP  - 2
4099  - https://pm-research.com/content/12/2/24.short
4100  - https://pm-research.com/content/12/2/24.full
AB  - Any simulation procedure has difficulty achieving accuracy for rare events that lie in the tails of the probability distributions one is simulating from. But that is where the outcomes that produce defaults in a credit portfolio occur, making pricing and risk management for CDOs and similar instruments difficult and (computer) time-consuming. In this article, Glasserman introduces several approximation procedures for estimating the tails of the distribution of default risk exposure for a credit portfolio. The technology appears somewhat daunting, but the results are impressive in terms of accuracy in fitting even the remote tails for a broad range of portfolios.