The Global Financial Crisis highlighted that default and recovery rates of multiple borrowers generally deteriorate jointly during economic downturns. The vast majority of the literature, as well as many industry credit portfolio risk models ignore this and analyze default probabilities and...

This paper employs the parametric probit regression model, estimates the probability of default (PD) of Australian mortgages, and examines the nature of the relationships between the PD and some loan level variables such as loan-to-value ratio (LVR), loan documentation, loan type, loan purpose,...

Financial institutions are faced with the challenge to forecast future credit portfolio losses. It is common practice to focus on portfolio models consisting of a limited set of parameters, such as the probability of default, asset correlation, loss given default or exposure at default. A simple...

This paper analyzes the level and cyclicality of bank capital requirement in relation to (i) the model methodologies through-the-cycle and point-in-time, (ii) four distinct downturn loss rate given default concepts, and (iii) US corporate and mortgage loans. The major finding is that less...

With the New Basle Capital Accord banks' capital requirements are determined with risk weights based on internal and external ratings and probabilities of default (PD's). PD's are mostly estimated from historical default rates. In recent working papers the Basle Committee on Banking Supervision...

Bei der Modellierung von Kreditportfoliorisiken stellt die Quantifizierung von Korrelationen zwischen Ausfällen bzw. Bonitätsveränderungen eine zentrale Herausforderung dar. Es läßt sich zwischen direkten und indirekten Modellierungsansätzen unterscheiden. Während erstere den...

Among the most crucial input parameters for credit portfolio risk models are the co-movements of default risks. Due to limited empirical evidence about the magnitude of correlations the New Basel Capital Accord sets standard requirements for calculating regulatory capital requirements, e.g. in...

We model multiyear loss distributions based on credit scores and macroeconomic risk drivers. In a two-step approach, we first model future default probabilities as functions of these risk factors and, second, model processes for the risk factors themselves. As an essential extension to one-year...

State-of-the-art credit risk portfolio models and the new Basel capital Accord consider only symmetric dependencies between borrowers in a portfolio, such as correlations. Recently, asymmetric dependencies have been introduced by Davis & Lo (2001), among others. However, statistical estimation...

In addition to “classical” approaches, such as the Gaussian CreditMetrics or Basel II model, recently the use of other copulas has been proposed in the area of credit risk for modeling loss distributions, particularly T copulas which lead to fatter tails ceteris paribus. As an amendment to...