We extend the Tasche (2007) model on the asset correlation bias caused by a currency mismatch between assets and liabilities to the more realistic situation where some assets, and some, but not necessarily all, liabilities, are denominated in a foreign currency. To test the significance of the...

This paper looks at the asset correlation bias resulting from firms’ assets and liabilities being denominated in different currencies. It focuses on the time-variation in the bias and on the dependency of the bias on currency movements. Overall, we find that the asset correlation bias for the...

This paper looks at the asset correlation bias resulting from firms’ assets and liabilities being denominated in different currencies. It focuses on the time-variation in the bias and on the dependency of the bias on currency movements. Both the volatility of the exchange rate and the...

This work aims to illustrate an advanced quantitative methodology for measuring the credit risk of a loan portfolio allowing for diversification effects. Also, this methodology can allocate the credit capital coherently to each counterparty in the portfolio. The analytical approach used for...

We derive Bayesian confidence intervals for the probability of default (PD), asset correlation (Rho), and serial dependence (Theta) for low default portfolios (LDPs). The goal is to reduce the probability of underestimating credit risk in LDPs. We adopt a generalized method of moments with...

This work aims to illustrate an advanced quantitative methodology for measuring the credit risk of a loan portfolio allowing for diversification effects. Also, this methodology can allocate the credit capital coherently to each counterparty in the portfolio. The analytical approach used for...

The level of capital requirement generated by the IRB approach depends crucially on the asset correlation, a parameter that enters the regulatory risk weight formula and is determined by the Regulators. Several studies have estimated the asset correlations and found that the empirical values are...

Results from portfolio models for credit risk tell us that loan concentration in certain industry sectors can substantially increase the value-at-risk (VaR). The purpose of this paper is to analyze whether a tractable "infection model" can provide a meaningful estimate of the impact of...

Estimation of default and asset correlation is crucial for banks to manage and measure portfolio credit risk. This would require studying the risk profile of the banks’ entire credit portfolio and developing the appropriate methodology for the estimation of default dependence. Measurement and...

Results from portfolio models for credit risk tell us that loan concentration in certain industry sectors can substantially increase the value-at-risk (VaR). The purpose of this paper is to analyze whether a tractable "infection model" can provide a meaningful estimate of the impact of...