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Structural Credit Modelling and Its Relationship to Market Value at Risk: An Australian Sectoral Perspective
Year Of Publication: 2008
Month Of Publication: March
Pages: 11
Download Count: 3
View Count: 1761
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 3-25-2011
Publisher: Administrator
Credit risk modelling has become increasingly important to Banks since the advent of Basel II which allows Banks with sophisticated modelling techniques to use internal models for the purpose of calculating capital requirements. A high level of credit risk is often the key reason behind banks failing or experiencing severe difficulty. The management of sectoral concentration is a critical component of credit risk management, as over concentration of credit in sectors can be a significant contributor to difficulties experienced by Banks. Conditional Value at Risk (CVaR) is gaining popularity as a measurement of credit risk, with the recognition that high lending losses are often impacted by a small number of extreme events. This study examines sectoral probability of default (PD) in an Australian context based on the structural approach of Merton (1974), and more recently modified and popularised by KMV Corporation (Crosbie & Bohn, 2003). In addition to examining PD, we introduce a CVaR type component into structural modelling which we term conditional probability of default (CPD). We also examine the interaction between sectoral cre
Allen, David E. Sign in to follow this author
Powell, Robert J. Sign in to follow this author
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