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A Note on the Vasicek’s Model with the Logistic Distribution

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The paper argues that it would be natural to replace the standard normal distribution function by the logistic function in the regulatory Basel II (Vasicek’s) formula. Such a model would be in fact consistent with the standard logistic regression PD modeling approach. An empirical study based on US commercial bank’s loan historical delinquency rates re-estimates the default correlations and unexpected losses for the normal and logistic distribution models. The results indicate that the capital requirements could be up to 100% higher if the normal Vasicek’s model was replaced by the logistic one.

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File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/4786/lang/cs
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Bibliographic Info

Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2013/01.

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Length: 16pages
Date of creation: Jan 2013
Date of revision: Jan 2013
Handle: RePEc:fau:wpaper:wp2013_01

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Keywords: credit risk; Basel II regulation; default rates;

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