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Simulation Based Approach for Measuring Concentration Risk
Company: Yonsei University
Year Of Publication: 2007
Month Of Publication: April
Pages: 15
Download Count: 238
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Comment Num: 0
Language: EN
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Who Can Read: Free
Date: 9-27-2007
Publisher: Administrator
Summary
Asymptotic Single Risk Factor (ASRF) model is used to derive the regulatorycapital formula of Internal Ratings-Based approach in the new Basel accord(Basel II). One of the important assumptions in ASRF model for credit risk is thatthe given portfolio is well diversified so that one can easily calculate the requiredcapital level by focusing only on systematic risk. In real world, however,idiosyncratic risk of a portfolio cannot be fully diversified away, causing the socalled concentration risk problem. In this paper we suggest simulation basedapproach for measuring concentration risk using bank capital dynamic model.This approach is especially suitable for a portfolio with relatively small tomedium number of obligors and relatively large sized loans.
Author(s)
Kim, Joocheol Sign in to follow this author
Lee, Duyeol Sign in to follow this author
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