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The single risk factor approach to capital charges in case of correlated loss given default rates

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Author Info
Dirk Tasche
Abstract

A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for capital charges are numerically compared to the current proposals by the Basel Committee on Banking Supervision. Keywords: Regulatory capital charge, loss given default (LGD).

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File URL: http://arxiv.org/abs/cond-mat/0402390
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File URL: http://arxiv.org/pdf/cond-mat/0402390
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Paper provided by arXiv.org in its series Quantitative Finance Papers with number cond-mat/0402390.

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Date of creation: Feb 2004
Date of revision: Feb 2004
Handle: RePEc:arx:papers:cond-mat/0402390

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  1. Gordy, Michael B., 2003. "A risk-factor model foundation for ratings-based bank capital rules," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 199-232, July. [Downloadable!] (restricted)
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  1. Daniel Rosch & Harald Scheule, 2009. "The Empirical Relation between Credit Quality, Recovery, and Correlation," Working Papers 222009, Hong Kong Institute for Monetary Research. [Downloadable!]
  2. Kim, Joocheol & Kim, KiHyung, 2006. "Loss Given Default Modelling under the Asymptotic Single Risk Factor Assumption," MPRA Paper 860, University Library of Munich, Germany. [Downloadable!]
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