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...

A major topic in empirical finance is correlation of default risk. Correlations are the main drivers for credit risk on a portfolio basis and for banks' capital requirements under the New Basel Accord. However, empirical evidence on the magnitude of correlations is rather scarce, mainly due to...

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...

Literature on Losses Given Default (LGD) usually focuses on mean predictions, even though losses are extremely skewed and bimodal. This paper proposes a Quantile Regression (QR) approach to get a comprehensive view on the entire probability distribution of losses. The method allows new insights...

The majority of industry credit portfolio risk models, as well as recent scientific results, are based on isolated modules for default probabilities and recoveries in the event of default. This paper shows that these common methods lead to various econometric drawbacks when the parameters are...

Correlations are the main drivers for credit portfolio risk and constitute a Major element in pricing credit derivatives such as synthetic single-tranche collateralized debt obligation swaps. This paper suggests a dynamic panel regression Approach to model and forecast implied correlations....