Modeling default correlation in a US retail loan portfolio
AbstractThis paper generalizes the existing asymptotic single-factor model to address issues related to industry heterogeneity, default clustering and parameter uncertainty of capital requirement in US retail loan portfolios. We argue that the Basel II capital requirement overstates the riskiness of small businesses even with prudential adjustments. Moreover, our estimates show that both location and spread of loss distribution bare uncertainty. Their shifts over the course of the recent crisis have important risk management implications. The results are based on a unique representative dataset of US small businesses from 2005 to 2011 and give fundamental insights into the US economy.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9205.
Date of creation: Nov 2012
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Other versions of this item:
- Magdalena Pisa & Dennis Bams & Christian Wolff, 2012. "Modeling default correlation in a US retail loan portfolio," LSF Research Working Paper Series 12-19, Luxembourg School of Finance, University of Luxembourg.
- G2 - Financial Economics - - Financial Institutions and Services
- G3 - Financial Economics - - Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-17 (All new papers)
- NEP-BAN-2012-11-17 (Banking)
- NEP-RMG-2012-11-17 (Risk Management)
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- Düllmann, Klaus & Koziol, Philipp, 2013. "Evaluation of minimum capital requirements for bank loans to SMEs," Discussion Papers 22/2013, Deutsche Bundesbank, Research Centre.
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