This paper derives a closed form formula for value at risk (VaR) and expected shortfall (ES) under a widely used Merton type multi-factor model for a credit portfolio with guaranteed loans.Typically used Monte Carlo simulations tend to converge slowly when the default probabilities are low and...

The subprime crisis revealed that the adoption of suitable systems for the management of credit risk is of utmost concern. The Basel Committee on Banking Supervision (2009) advises banks to use credit portfolio models with caution when assessing the capital adequacy. This paper investigates...

A parsimonious extension of a well-known portfolio credit-risk model allows us to study a salient stylized fact - abrupt switches between high- and low-loss phases - from a risk-management perspective. As uncertainty about phase switches increases, expected losses decouple from unexpected...

The paper examines whether bank diversification in multiple dimensions can protect bank lending from uncertainty shocks. We use a panel of Vietnamese commercial banks during 2007 - 2019 for empirical analysis and measure uncertainty in banking by the dispersion of bank-level shocks. Our results...

Using a unique data set on German banks' sector specific loan exposures to the real economy and the corresponding write-offs and write-downs, we examine the impact of loan portfolio sector concentration on credit risk. By controlling for common risk factors, we separate the bank-specific...

The purpose of this paper is to derive a model for calculation of maturities and volumes of repayments that a bank may expect from nonretail nonperforming loans (hereafter NPLs). Expected inflows from nonretail NPLs follow a probability distribution, defined by size and timing of historic...

We propose a dynamic structural model of credit risk of multiple loan portfolios. In line with Merton, Vasicek and Pykhtin, we assume that a loan defaults if the assets of the debtor fall below his liabilities, and that the subsequent loss given default is determined by the collateral value. For...

The ongoing debate concerning credit concentration risk is mainly driven by the requirements on credit risk management due to Pillar 2 of Basel II since risks (e.g. concentration risk) that are not fully captured by Pillar 1 should be adequately considered in the banks' risk management. This...

Banks increasingly recognize the need to measure and manage the credit risk of their loans on a portfolio basis. We address the subportfolio "middle market". Due to their specific lending policy for this market segment it is an important task for banks to systematically identify regional and...

Our paper addresses firm size as a driver of systematic credit risk in loans to small and medium enterprises (SMEs). Key contributions are the use of a unique data set of SME lending by over 400 German banks and relating systematic risk to the size dependence of regulatory capital requirements....