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



    (Trier University, Germany)


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


    (Trier University, Germany)


    (Rostock University, Germany)


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

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    More about this item


    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


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