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Methodological Problems of Quantitative Credit Risk Modeling in the Czech Economy

Author

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  • Alexis Derviz
  • Narcisa Kadlcakova

Abstract

This paper reviews the guidelines of "The New Basle Capital Accord" (NBCA) and four internal models of credit risk assessment. We treat them from the point of view of their underlying concepts, the institutional pre-conditions of their implementation and data requirements. We specially focus on the possibilities, difficulties and consequences of their application to the banking sector in the Czech Republic. The description of each model focuses on the underlying assumptions, characteristics and theoretical approaches and a brief discussion of their main advantages and limitations. Comparisons among models aim at identifying their common features and points of departure. Last but not least, we try to assess the potential impact that the use of these models could have on credit allocation in the Czech economy, and, consequently, on the resulting environment for the conduct of monetary policy. A number of preliminary recommendations for the models' implementation in this country are formulated.

Suggested Citation

  • Alexis Derviz & Narcisa Kadlcakova, 2001. "Methodological Problems of Quantitative Credit Risk Modeling in the Czech Economy," Archive of Monetary Policy Division Working Papers 2001/39, Czech National Bank.
    • Handle: RePEc:cnb:mpaper:2001/39
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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/mp_wp/download/WP39_Derviz_Kadlcakova.pdf
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    References listed on IDEAS

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    3. Cox, John C. & Huang, Chi-fu, 1989. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Journal of Economic Theory, Elsevier, vol. 49(1), pages 33-83, October.
    4. Crouhy, Michel & Galai, Dan & Mark, Robert, 2000. "A comparative analysis of current credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 59-117, January.
    5. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
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    Cited by:

    1. Martin Cihak, 2004. "Designing Stress Tests for the Czech Banking System," Research and Policy Notes 2004/03, Czech National Bank, Research and Statistics Department.

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