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A Note on the Vasicek’s Model with the Logistic Distribution

The paper argues that it would be natural to replace the standard normal distribution function by the logistic function in the regulatory Basel II (Vasicek’s) formula. Such a model would be in fact consistent with the standard logistic regression PD modeling approach. An empirical study based on US commercial bank’s loan historical delinquency rates re-estimates the default correlations and unexpected losses for the normal and logistic distribution models. The results indicate that the capital requirements could be up to 100% higher if the normal Vasicek’s model was replaced by the logistic one.

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File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/4786/lang/cs
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Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2013/01.

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Length: 16pages
Date of creation: Jan 2013
Date of revision: Jan 2013
Handle: RePEc:fau:wpaper:wp2013_01
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