Improved Modeling of Double Default Effects in Basel II - An Endogenous Asset Drop Model Without Additional Correlation
نویسندگان
چکیده
منابع مشابه
Improved Modeling of Double Default Effects in Basel Ii - an Endogenous Asset Drop Model without Additional Correlation
In 2005 the Internal Ratings Based (IRB) approach of ‘Basel II’ was enhanced by a ‘treatment of double default effects’ to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several severe problems of this approach and presents a new method to account for double default effects. This new asset drop technique can be applied within ...
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Within the Internal Ratings-Based (IRB) approach of Basel II it is assumed that idiosyncratic risk has been fully diversified away. The impact of undiversified idiosyncratic risk on portfolio Value-at-Risk can be quantified via a granularity adjustment (GA). We provide an analytic formula for the GA in an extended singlefactor CreditRisk setting incorporating double default effects. It accounts...
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The asymptotic single risk factor (ASRF) approach is a simplified framework for determining regulatory capital charges for credit risk and has become an integral part of how credit risk capital requirements are to be determined under the second Basel Accord. Within this approach, a key regulatory parameter is the average asset correlation. In this paper, we examine the empirical relationship be...
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Moody’s databases of corporate issuers of long term bonds and structured products are used to estimate asset correlations across a group of sectors, world regions and products. The estimation of a dynamic factor model for default risk is performed using Bayesian methods. Results indicate that a two factor model rather than the one factor model, as proposed by the Basel II framework, better repr...
متن کاملDouble Default Correlation
Copula functions have become standard practice for pricing multi-name credit derivatives. Marginal default distributions are often chosen by using a simple deterministic intensity function. It is wellknown that this approach only generates default time correlation and, apart from jumps due to default events, does not generate correlation between the conditional default intensities, or the condi...
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ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2009
ISSN: 1556-5068
DOI: 10.2139/ssrn.1460046