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A new approach to the unconditional measurement of default risk

Author

Listed:
  • Alejandro Ferrer Pérez

    () (Facultad de Ciencias Económicas. Universidad Complutense de Madrid.)

  • José Casals Carro

    (Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa). Universidad Complutense de Madrid.)

  • Sonia Sotoca López

    () (Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa). Universidad Complutense de Madrid.)

Abstract

This paper analyzes the unconditional measurement of default risk and proposes an alternative modeling approach. We begin the analysis by showing that when conducted under non-stationarity, the objective of the unconditional measurement changes and that some relevant problems appear as a consequence of the sample dependence. Based on this result, we introduce our approach and discuss its consistency, practical advantages, and the main di erences from the conventional static framework. An empirical analysis is also conducted. Under non-stationarity, the regulatory model for the unconditional probability of default distribution performs badly when compared to our approach. Results also show that the capital gure presents a determinant and non-trivial dependence on the homogeneity and severity of the economic scenario represented in the sample.

Suggested Citation

  • Alejandro Ferrer Pérez & José Casals Carro & Sonia Sotoca López, 2014. "A new approach to the unconditional measurement of default risk," Documentos de Trabajo del ICAE 2014-11, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  • Handle: RePEc:ucm:doicae:1411
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    File URL: http://eprints.ucm.es/25738/1/14111.pdf
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    References listed on IDEAS

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    Cited by:

    1. Alejandro Ferrer Pérez & José Casals Carro & Sonia Sotoca López, 2014. "Linking the problems of estimating and allocating unconditional capital," Documentos de Trabajo del ICAE 2014-13, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    2. Alejandro Ferrer Pérez & José Casals Carro & Sonia Sotoca López, 2014. "Conditional coverage and its role in determining and assessing long-term capital requirements," Documentos de Trabajo del ICAE 2014-12, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

    More about this item

    Keywords

    Default risk; Probability of default; Unconditional measurement; Conditional measurement.;

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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