Basel II Implementation, Chapter 2 - Risk Ratings System Quantification, Part 2
This is a sample chapter from Basel II Implementation, an invaluable guide that puts a potent combination of theory and real-world practice at your fingertips. Written by two of the most globally recognized and sought-after thought leaders in Basel II implementation, this how-to book maps out, step-by-step, implementable solutions that are both academically credible and practical, making them defendable to regulators and executable within the constraints of data, resources, and time.
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asset correlation assigned PD assume bank bank’s Basel Basel II beta distribution borrower-specific borrower’s capital requirement conditional PD credit cycle credit risk Cycle-Average default point default rate data downgrade economic capital Equation estimator of LRPD explanatory variables external default rate Figure historical default rates idiosyncratic incorporating input internal risk rating LGD LGD LGD risk LGD risk factor loan long-run PDs LRPD estimate LRPDave LRPDMLE1 master scale mean LGD Method methodology migration rates Miu and Ozdemir obligors observed default rates pairwise LGD correlation PD and LGD PD correlation PD PD PD Stress Testing PDs assigned Pt and Lt R2LGD R2PD reference date reported in Table risk rating philosophy RLGD sample serial correlation simulation Standard & Poor’s standard deviation standard normal distribution stress event stress scenarios Stress Testing Model stressed LGD systematic factor systematic PD risk systematic risk time-series true LRPD type I error unconditional