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Loss Given Default Modelling under the Asymptotic Single Risk Factor Assumption

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  • Kim, Joocheol
  • Kim, KiHyung

Abstract

The proposals of the Basel Committee on Banking Supervision for the revision of minimum requirements for bank's risk capital leave the quanti¯cation of loss-given-default (LGD) parameter used for capital calculation unspeci¯ed. This paper proposes a new methodology for incorporating LGD parameter explicitly into the Basel risk weight function. Numerical examples based on the new methodology are compared to the current proposals of the Basel committee on Banking Supervision.

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File URL: http://mpra.ub.uni-muenchen.de/860/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 860.

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Date of creation: 17 Nov 2006
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Publication status: Published in Asia-Pacific Journal of Financial Studies 2.36(2007): pp. 223-236
Handle: RePEc:pra:mprapa:860

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Keywords: LGD; Single Risk Factor; Basel;

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  1. Dirk Tasche, 2004. "The single risk factor approach to capital charges in case of correlated loss given default rates," Papers cond-mat/0402390, arXiv.org, revised Feb 2004.
  2. 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.
  3. Michael B. Gordy, 1998. "A comparative anatomy of credit risk models," Finance and Economics Discussion Series 1998-47, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Balogh Peter & BOLOCAN DRAGOS-MIHAIL, 2010. "The Management Of Credit Risk According To Internal Ratings- Based Approach," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 665-671, December.

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