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...

Purpose – Estimation of default and asset correlation is crucial for banks to manage and measure portfolio credit risk. The purpose of this paper is to find empirical relationship between the default and asset correlation with default probability, to understand the effect of systematic risk....

Many investment companies hold diversified asset portfolios and frequently try to mirror or outperform a market index for each asset class such as stocks and bonds. As Wibaut and Wilford (2009) show, often the same issuers appear in each of those indices and this may lead to undesirable results...

We examine the effect of book-to-market equity (BE/ME) on asset correlations in the asymptotic single risk factor (ASRF) framework under the Basel II Accord on regulatory capital requirement. Over a sample period from 1988 to 2007, we find that BE/ME is negatively related to asset correlations...

This paper presents a critical review of the neoclassical pricing models and assumptions used to valuate the products of structured finance using historical market data provided by credit default swaps. These models are founded on the idea that the efficient market hypothesis could be...

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...