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Estimating the distribution of total default losses on the Spanish financial system

Listed author(s):
  • García-Céspedes, Rubén
  • Moreno, Manuel

This paper quantifies the credit risk loss distribution of the Spanish financial system by introducing a general Monte Carlo importance sampling (IS) approach. We start obtaining all the required information for the standard credit risk model. Then we quantify the loss distribution under the standard IS method and allocate the total risk over the different institutions in the Spanish financial system. We extend the current IS framework to deal with more general assumptions like random recoveries and market valuation. We also study the variability of the risk measures over the business cycle and the possible variability due to the model parameters uncertainty. Our results show that this approach can be very useful for banking supervisors from a macroprudential point of view and that the risk allocation can vary considerably depending on the valuation model under analysis.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378426614003197
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 49 (2014)
Issue (Month): C ()
Pages: 242-261

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Handle: RePEc:eee:jbfina:v:49:y:2014:i:c:p:242-261
DOI: 10.1016/j.jbankfin.2014.09.019
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  17. Altman, Edward I. & Suggitt, Heather J., 2000. "Default rates in the syndicated bank loan market: A mortality analysis," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 229-253, January.
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