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Developing, Validating, and Monitoring a PD Model for Foundation IRB Approach

Author

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  • Nguyen, Van Phuong

Abstract

Assuming that a given bank wants to comply with the Basel Accord requirements, in particular the Foundation IRB approach. Accordingly, it has to develop a PD model to predict the probability of default of its borrower within one year. Hence, this paper aims to present a simply empirical procedure for developing, validating, and monitoring a PD model.

Suggested Citation

  • Nguyen, Van Phuong, 2019. "Developing, Validating, and Monitoring a PD Model for Foundation IRB Approach," MPRA Paper 100628, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100628
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    File URL: https://mpra.ub.uni-muenchen.de/100628/1/MPRA_paper_100628.pdf
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    More about this item

    Keywords

    textbf{Keywords:} Basel Accord II; Loss Distribution; Expected Loss; Unexpected Loss; Risk Components; VaR; CAR; Model Validation and Monitoring; AUROC; CAP; PSI.;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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