Related papers: Regulatory Capital Modelling for Credit Risk
In this paper, we study large losses arising from defaults of a credit portfolio. We assume that the portfolio dependence structure is modelled by the Archimedean copula family as opposed to the widely used Gaussian copula. The resulting…
The Solvency II Directive and Solvency Assessment and Management (the South African equivalent) give a Solvency Capital Requirement which is based on a 99.5% Value-at-Risk (VaR) calculation. This calculation involves aggregating individual…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for…
In this paper, we study the robust optimal investment and risk control problem for an insurer who owns the insider information about the financial market and the insurance market under model uncertainty. Both financial risky asset process…
Earlier studies have shown that stock market distributions can be well described by distributions derived from Tsallis entropy, which is a generalization of Shannon entropy to non-extensive systems. In this paper, Tsallis relative entropy…
Credit risk management, the practice of mitigating losses by understanding the adequacy of a borrower's capital and loan loss reserves, has long been imperative to any financial institution's long-term sustainability and growth. MassMutual…
Regulation and risk management in banks depend on underlying risk measures. In general this is the only purpose that is seen for risk measures. In this paper we suggest that the reporting of risk measures can be used to determine the loss…
This study investigates the factors that influence the capital adequacy of commercial banks in Bangladesh using panel data from 28 banks over the period of 2013-2019. Three analytical methods, including the Fixed Effect model, Random Effect…
Accurate modeling of operational risk is important for a bank and the finance industry as a whole to prepare for potentially catastrophic losses. One approach to modeling operational is the loss distribution approach, which requires a bank…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…
A new procedure is presented for the objective comparison and evaluation of default definitions. This allows the lender to find a default threshold at which the financial loss of a loan portfolio is minimised, in accordance with Basel II.…
Analysis of the 2007-8 credit crisis has concentrated on issues of relaxed lending standards, and the perception of irrational behaviour by speculative investors in real estate and other assets. Asset backed securities have been extensively…
Credit risk rating is shown to be a relevant determinant in order to estimate good corporate governance and to self-optimize capital structure. The conclusion is argued from a study on a selected (and justified) sample of (182) companies…
The initial Climate-Extended Risk Model (CERM) addresses the estimate of climate-related financial risk embedded within a bank loan portfolio, through a climatic extension of the Basel II IRB model. It uses a Gaussian copula model…
Entropy based ideas find wide-ranging applications in finance for calibrating models of portfolio risk as well as options pricing. The abstracted problem, extensively studied in the literature, corresponds to finding a probability measure…
Surrender poses one of the major risks to life insurance and a sound modeling of its true probability has direct implication on the risk capital demanded by the Solvency II directive. We add to the existing literature by performing…
We quantify model risk of a financial portfolio whereby a multi-period mean-standard-deviation criterion is used as a selection criterion. In this work, model risk is defined as the loss due to uncertainty of the underlying distribution of…
We introduce a model for the loss distribution of a credit portfolio considering a contagion mechanism for the default of names which is the result of two independent components: an infection attempt generated by defaulting entities and a…
We construct a continuous time model for price-mediated contagion precipitated by a common exogenous stress to the banking book of all firms in the financial system. In this setting, firms are constrained so as to satisfy a risk-weight…