IDEAS home Printed from https://ideas.repec.org/a/wsi/afexxx/v04y2008i01ns2010495208500036.html
   My bibliography  Save this article

The New Basel Accord And The Nature Of Risk: A Game Theoretic Perspective

Author

Listed:
  • VOLKER BIETA

    (Trier University, Germany)

  • UDO BROLL

    () (Faculty of Business Management and Economics, Dresden University of Technology, 01062 Dresden, Germany)

  • HELLMUTH MILDE

    (Trier University, Germany)

  • WILFRIED SIEBE

    (Rostock University, Germany)

Abstract

Basel II changes risk management in banks strongly. Internal rating procedures would lead one to expect that banks are changing over to active risk control. But, if risk management is no longer a simple "game against nature", if all agents involved are active players then a shift from a non-strategic model setting (measuring event risk stochastically) to a more general strategic model setting (measuring behavioral risk adequately) comes true. Knowing that a game is any situation in which the players make strategic decisions — i.e. decisions that take into account each other's actions and responses — game theory is a useful set of tools for better understanding different risk settings. Embedded in a short history of the Basel Accord in this article we introduce some basic ideas of game theory in the context of rating procedures in accordance with Basel II. As well, some insight is given how game theory works. Here, the primary value of game theory stems from its focus on behavioral risk: risk when all agents are presumed rational, each attempting to anticipate likely actions and reactions by its rivals.

Suggested Citation

  • Volker Bieta & Udo Broll & Hellmuth Milde & Wilfried Siebe, 2008. "The New Basel Accord And The Nature Of Risk: A Game Theoretic Perspective," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-22.
  • Handle: RePEc:wsi:afexxx:v:04:y:2008:i:01:n:s2010495208500036
    DOI: 10.1142/S2010495208500036
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S2010495208500036
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    New basel accord; event risk; behavioral risk; rating; simple game; Nash equilibrium; game theory; A10; A22; C79;

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:afexxx:v:04:y:2008:i:01:n:s2010495208500036. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim). General contact details of provider: http://www.worldscinet.com/afe/afe.shtml .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.