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 …-factor models where default and loss given default are driven by one systemic factor and by one or more idiosyncratic factors. In …

parameters, with default intensities estimated from market data and with a random loss given default that is correlated with … between the loss given default and the default times. Our approach describes the market prices better than the standard …

In this paper we focus on the analysis of the effect of prediction and estimation risk on the loss distribution, risk … measures and economic capital. When variables for the determination of probability of default and loss distribution have to be … using historical data. The incorporation of prediction and estimation risk generally leads to broader loss distributions and …