The Probability Approach to Default Probabilities
نویسنده
چکیده
The probability approach to uncertainty and modeling is applied to default probability estimation. This issue has attracted attention as banks contemplate the requirements of Basel IIs IRB rules. Nicholas M. Kiefer proposes the fomal introduction of expert information into quantitative analysis. An application treating the incorporation of expert information on the default probability is considered in detail. Keywords: Bayesian inference, Bayesian estimation, expert information, Basel II, risk management JEL Classi cations: C11, C13, C44, G18, G32 Disclaimer: The statements made and views expressed herein are solely those of the author, and do not represent o¢ cial policies, statements or views of the O¢ ce of the Comptroller of the Currency or its sta¤. Acknowledgement: I thank Je¤rey Brown, Mike Carhill, Erik Larson, Mark Levonian, Katja Pluto, Mitch Stengel, Dirk Tasche, and seminar participants at Cornell University and the OCC. These thanks come with gratitude but without any implication of agreement with my views.
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