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Evaluation of Default Risk for The Brazilian Banking Sector

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  • Marcelo Y. Takami
  • Benjamin M. Tabak

Abstract

This paper employs new methods to measure and monitor risk in the Brazilian banking sector. We prove that the option-based risk measure is negatively sensitive to interest rates. As this is an important issue for emerging market economies, the risk measures are built as deviations from mean. Additionally, the option-based indicator is compared with market-based financial fragility indicators. Results show that these indicators are useful for risk managers and regulators, especially during crisis. Furthermore, option-based methods are preferable to classify banks in periods of high distress, such as the banking crises that occurred in the early nineties in Brazil.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps135.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 135.

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Date of creation: May 2007
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Handle: RePEc:bcb:wpaper:135

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Web page: http://www.bcb.gov.br/?english

For corrections or technical questions regarding this item, or to correct its listing, contact: (Benjamin Tabak).

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Eduardo Lundberg, 2000. "Monetary Policy and Banking Supervision Functions on the Central Bank," Working Papers Series 2, Central Bank of Brazil, Research Department.
  2. Alves, Sergio A Lago & Bugarin, Mirta N S, 2006. "The Role of Consumer's Risk Aversion on Price Rigidity," Computing in Economics and Finance 2006 128, Society for Computational Economics.
  3. Alexandre A. Tombini & Sergio A. Lago Alves, 2006. "The Recent Brazilian Disinflation Process and Costs," Working Papers Series 109, Central Bank of Brazil, Research Department.
  4. Marcelo Kfoury Muinhos & Sergio Afonso Lago Alves, 2003. "Medium-Size Macroeconomic Model for the Brazilian Economy," Working Papers Series 64, Central Bank of Brazil, Research Department.
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