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Approximate value-at-risk calculation for heterogeneous loan portfolios: Possible enhancements of the Basel II methodology

Author

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  • Puzanova, Natalia
  • Siddiqui, Sikandar
  • Trede, Mark

Abstract

This paper presents three possible methods by which the credit value at risk estimates coming from the Basel II IRB approach can be significantly improved upon. The feasibility of the suggested approaches is substantiated by applying it to an exemplary model portfolio.

Suggested Citation

  • Puzanova, Natalia & Siddiqui, Sikandar & Trede, Mark, 2009. "Approximate value-at-risk calculation for heterogeneous loan portfolios: Possible enhancements of the Basel II methodology," Journal of Financial Stability, Elsevier, vol. 5(4), pages 374-392, December.
    • Handle: RePEc:eee:finsta:v:5:y:2009:i:4:p:374-392
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    References listed on IDEAS

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    1. Eric Ghysels & Anders Eriksson Lars Forsberg, 2004. "Approximating the probability distribution of functions of random variables: A new approach," Econometric Society 2004 Far Eastern Meetings 503, Econometric Society.
    2. Pavel Okunev, 2005. "Using Hermite Expansions for Fast and Arbitrarily Accurate Computation of the Expected Loss of a Loan Portfolio Tranche in the Gaussian Factor Model," Finance 0506015, University Library of Munich, Germany.
    3. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    4. repec:kap:iaecre:v:12:y:2006:i:3:p:425-425 is not listed on IDEAS
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    Cited by:

    1. Barbagli, Matteo & Vrins, Frédéric, 2023. "Accounting for PD-LGD dependency: A tractable extension to the Basel ASRF framework," Economic Modelling, Elsevier, vol. 125(C).

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