The impact of a stress scenario of default events on the loss distribution of a credit portfolio can be assessed by determining the loss distribution conditional on these events. While it is conceptually easy to estimate loss distributions conditional on default events by means of Monte Carlo...

PD curve calibration refers to the transformation of a set of rating grade level probabilities of default (PDs) to another average PD level that is determined by a change of the underlying portfolio-wide PD. This paper presents a framework that allows to explore a variety of calibration...

We study how to perform tests on samples of pairs of observations and predictions in order to assess whether or not the predictions are prudent. Prudence requires that that the mean of the difference of the observation-prediction pairs can be shown to be significantly negative. For safe...