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Exposure at Default Model for Contingent Credit Line

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  • Bag, Pinaki

Abstract

In-spite of large volume of Contingent Credit Lines (CCL) in all commercial banks paucity of Exposure at Default (EAD) models, unsuitability of external data and inconsistent internal data with partial draw-down, has been a major challenge for risk managers as well as regulators for managing CCL portfolios. Current paper is an attempt to build an easy to implement, pragmatic and parsimonious yet accurate model to determine exposure distribution of a CCL portfolio. Each of the credit line in a portfolio is modeled as a portfolio of large number of option instrument which can be exercised by the borrower determining the level of usage. Using an algorithm similar to basic CreditRisk+ and Fourier Transforms we arrive at a portfolio level probability distribution of usage.

Suggested Citation

  • Bag, Pinaki, 2010. "Exposure at Default Model for Contingent Credit Line," MPRA Paper 20387, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:20387
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    References listed on IDEAS

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    Cited by:

    1. Lin Chen & Zongfang Zhou & Yi Peng & Gang Kou, 2011. "Structural Model For Determining Enterprise Group'S Integrated Lines Of Credit," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 269-285.

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    More about this item

    Keywords

    EAD; Basel II; Credit Risk; Contingent credit line (CCL);
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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