Tranche Loss with Extended Vasicek Distribution


Collaboration with Lorenzo Savoia of the Politecnico di Milano

Default Probability (%)     Correlation (%)  

Number Loans     Loss Given Default (%)  

Tranche Attach (%)     Tranche Detach (%)  

We apply the Vasicek Credit Default Distribution and an Extended Vasicek Distribution ("XLPA") to the calculation of Tranche Expected Loss in a simplified structured credit transaction with many assumptions. See the article "Extending the Large Pool Approximation" for detailed explanation of the XLPA.

Vasicek       XLPA

Probability of Loss (%)  

Expected Loss (% of Tranche)