Detail publikace

Loss, Default, and Loss Given Default Modeling

Autor: RNDr. Jiří Witzany Ph.D.,
Typ: IES Working Papers
Rok: 2009
Číslo: 9
Publikováno v: IES Working Papers 9/2009
Místo vydání: Prague
Klíčová slova: credit risk, correlation, recovery rate, regulatory capital
JEL kódy: G21, G28, C14
Citace: Witzany, J. (2009). “ Loss, Default, and Loss Given Default Modeling ” IES Working Paper 9/2009. IES FSV. Charles University.
Abstrakt: The goal of the Basle II regulatory formula is to model the unexpected loss on a loan
portfolio. The regulatory formula is based on an asymptotic portfolio unexpected
default rate estimation that is multiplied by an estimate of the loss given default
parameter. This simplification leads to a surprising phenomenon when the resulting
regulatory capital depends on the definition of default that plays the role of a
frontier between the unexpected default rate estimate and the LGD parameter
whose unexpected development is not modeled at all or only partially. We study the
phenomenon in the context of single-factor models where default and loss given
default are driven by one systemic factor and by one or more idiosyncratic factors.
In this theoretical framework we propose and analyze a relatively simple remedy of
the problem requiring that the LGD parameter be estimated as a quantile on the
required probability level.
Ke stažení: WP 2009_09_Witzany


McKinsey & Company