Emerging Market Default Risk Charge Model

In a default event, several obligors simultaneously experience financial difficulty in servicing their debt to the point where entire market can sudden yet significant jump credit default. To help protect lenders against jump-to-default regulators require banks hold capital equivalent risk charge as buffer losses they may incur. The Basel regulatory committee has articulated and set modelling guidelines improve comparability amongst enable consistent bank-wide estimation. Emerging markets are unique because usually have illiquid sparse data. Thus, implementing an emerging model and, at same time, complying with be non-trivial. This research presents framework for line requirements. correlation inputs derived empirically calibrated using paper ends some considerations that regulators, supervisors, use get institutions adopt model.