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Approximate value-at-risk calculation for heterogeneous loan portfolios: Possible enhancements of the Basel II methodology

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  • Puzanova, Natalia
  • Siddiqui, Sikandar
  • Trede, Mark

Abstract

This paper presents three possible methods by which the credit value at risk estimates coming from the Basel II IRB approach can be significantly improved upon. The feasibility of the suggested approaches is substantiated by applying it to an exemplary model portfolio.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 5 (2009)
Issue (Month): 4 (December)
Pages: 374-392

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Handle: RePEc:eee:finsta:v:5:y:2009:i:4:p:374-392

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Web page: http://www.elsevier.com/locate/jfstabil

Related research

Keywords: Credit value at risk Basel II Moment matching Fourier transform Edgeworth expansion;

References

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  1. Eric Ghysels & Anders Eriksson Lars Forsberg, 2004. "Approximating the probability distribution of functions of random variables: A new approach," Econometric Society 2004 Far Eastern Meetings 503, Econometric Society.
  2. Javier Perote & Esther BrĂ­o, 2006. "Positive Definiteness of Multivariate Densities Based on Hermite Polynomials," International Advances in Economic Research, Springer, vol. 12(3), pages 425-425, August.
  3. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
  4. Natalia Puzanova & Sikandar Siddiqui, 2005. "Default dependence among corporate bond issuers: empirical evidence from time series data," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(5), pages 297-302, September.
  5. Pavel Okunev, 2005. "Using Hermite Expansions for Fast and Arbitrarily Accurate Computation of the Expected Loss of a Loan Portfolio Tranche in the Gaussian Factor Model," Finance 0506015, EconWPA.
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