Transfer risk can be an important risk factor for the estimation of a borrower's default risk, and thus has to be included into the PD estimations for the IRB approach under Basel II. In practice, there are two main methodologies for capturing transfer risk: the direct inclusion in the borrower...

For credit risk management purposes in general, and for allocation of regulatory capital by banks in particular (Basel II), numerical assessments of the credit-worthiness of borrowers are indispensable. These assessments are expressed in terms of probabilities of default (PD) that should...