Please use this identifier to cite or link to this item:
https://hdl.handle.net/2440/108667
Citations | ||
Scopus | Web of Science® | Altmetric |
---|---|---|
?
|
?
|
Type: | Journal article |
Title: | Regulatory capital modeling for credit risk |
Author: | RUTKOWSKI, M. TARCA, S. |
Citation: | International Journal of Theoretical and Applied Finance, 2015; 18(5):1550034-1550034 |
Publisher: | World Scientific Publishing Company |
Issue Date: | 2015 |
ISSN: | 0219-0249 1793-6322 |
Statement of Responsibility: | Marek Rutkowski and Silvio Tarca |
Abstract: | The Basel II internal ratings-based (IRB) approach to capital adequacy for credit risk plays an important role in protecting the banking sector against insolvency. We outline the mathematical foundations of regulatory capital for credit risk, and extend the model specification of the IRB approach to a more general setting than the usual Gaussian case. It rests on the proposition that quantiles of the distribution of conditional expectation of portfolio percentage loss may be substituted for quantiles of the portfolio loss distribution. We present a more compact proof of this proposition under weaker assumptions. Then, constructing a portfolio that is representative of credit exposures of the Australian banking sector, we measure the rate of convergence, in terms of number of obligors, of empirical loss distributions to the asymptotic (infinitely fine-grained) portfolio loss distribution. Moreover, we evaluate the sensitivity of credit risk capital to dependence structure as modeled by asset correlations and elliptical copulas. Access to internal bank data collected by the prudential regulator distinguishes our research from other empirical studies on the IRB approach. |
Keywords: | Credit risk; regulatory capital; internal ratings-based (IRB) approach; asymptotic single risk factor (ASRF) model; credit value-at-risk (VaR); one-factor Gaussian copula, Student’s t copula |
Rights: | © World Scientific Publishing Company |
DOI: | 10.1142/S021902491550034X |
Published version: | http://dx.doi.org/10.1142/s021902491550034x |
Appears in Collections: | Aurora harvest 8 Economics publications |
Files in This Item:
File | Description | Size | Format | |
---|---|---|---|---|
RA_hdl_108667.pdf Restricted Access | Restricted Access | 957.71 kB | Adobe PDF | View/Open |
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.