Factor Models
From Open Risk Manual
Revision as of 19:48, 27 January 2020 by Wiki admin (talk | contribs)
Definition
Factor Models are general class of quantitative models that employ multiple factors to explain the joint behavior of the target variables.
Examples
- Credit portfolio models using select underlying risk factors as drivers for credit events
Issues and Challenges
- Linearity is typical assumption
- Portfolio behavior may be explainable with substantially fewer factors than those employed by the model
