In this Technical Note, we present the enhanced Asset-Based Rule and refit the model using the latest available MSCI equity index data. This enhancement offers an improved estimation methodology of the model as well as increasing the coverage to a wider range of markets.

In the CreditMetrics framework, the value of a pool of loans at the risk horizon is determined by the state of its driving market factors and the idiosyncratic factors of the individual loans.  However, if the loan pool consists of hundreds of loans, most of the risk from idiosyncratic factors is diversified away, leaving the horizon values driven mostly by market factors.  While this behavior is intuitive for standalone pools, it has an undesirable side effect for portfolios...