Interaction between market and credit risk: Focus on the endogeneity of aggregate risk
AbstractAs shown in the recent BCBS papers market and credit risks could reinforce each other in certain circumstances, meaning the sum of the parts might be less than an estimate of risk that takes into account the interactions between the two. Market risk factors have an ambiguous impact on the firms' repayment conditions because depreciation of domestic currency for instance favors exporters and harms importers. Within the task of a ‘top-down’ aggregation of market and credit risks this contribution presents a general framework to economic capital measurement and active portfolio management splitting exogenous risk factor influence throw different channels. The approach implies an exploiting of banks information about the clients' trade and cash flows related to global economic activity. The way to single out exposures to counterparties belonging to the same pattern of behavioural reactions to the market factors are considered as the bedrock of Factor endogenous behaviour aggregation (FEBA) approach.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 18245.
Date of creation: 08 Nov 2009
Date of revision:
integrated analysis of market and credit risk; risk management; endogenous behaviour; concentration risk.;
Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-14 (All new papers)
- NEP-BAN-2009-11-14 (Banking)
- NEP-RMG-2009-11-14 (Risk Management)
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.:
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- Sokolov, Yuri, 2012. "Modeling risk in a dynamically changing world: from association to causation," MPRA Paper 40096, University Library of Munich, Germany.
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