The single risk factor approach to capital charges in case of correlated loss given default rates

Details The single risk factor approach to capital charges in case of correlated loss given default rates The single risk factor approach to capital charges in case of correlated loss given default rates

2004-02-14

arxiv.org/abs/cond-mat/0402390v2

Physics

Condensed Matter

Other Condensed Matter

9 pages, LaTeX

Scientific paper

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 capital charges are numerically compared to the current proposals by the Basel Committee on Banking Supervision. Keywords: Regulatory capital charge, loss given default (LGD).

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