Annual Default Rates and Probably Less Than Long-Run Average Annual Default Rates
Banks using either the Foundation or Advanced option of the Internal Ratings Based approach to credit risk under Basel II must estimate long-run annual average default probabilities for buckets of homogeneous assets. The one-factor model underlying the capital calculations in Basel II has implications for the distribution of average (across assets) default rates over time. One of these implications is that the average default rate in any period is probably smaller than the overall average default rate (over time and assets). The lesson for practioners is that the short-term default experience of new, very safe assets is likely to underpredict the true long-run default rate for these assets.
|Date of creation:||May 2008|
|Contact details of provider:|| Postal: 402 Uris Hall, Ithaca, NY 14853|
Phone: (607) 255-9901
Fax: (607) 255-2818
Web page: http://www.arts.cornell.edu/econ/CAE/workingpapers.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ecl:corcae:08-03. 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: ()
If references are entirely missing, you can add them using this form.