A new approach to the unconditional measurement of default risk

  1. Ferrer Pérez, Alejandro
  2. Casals Carro, José
  3. Sotoca López, Sonia
Revista:
Documentos de Trabajo (ICAE)

ISSN: 2341-2356

Año de publicación: 2014

Número: 11

Páginas: 1-13

Tipo: Documento de Trabajo

DIALNET GOOGLE SCHOLAR lock_openDocta Complutense editor

Otras publicaciones en: Documentos de Trabajo (ICAE)

Resumen

This paper analyzes the unconditional measurement of default risk and proposes an alternative modeling approach. We begin the analysis by showing that when conducted under non-stationarity, the objective of the unconditional measurement changes and that some relevant problems appear as a consequence of the sample dependence. Based on this result, we introduce our approach and discuss its consistency, practical advantages, and the main differences from the conventional static framework. An empirical analysis is also conducted. Under nonstationarity, the regulatory model for the unconditional probability of default distribution performs badly when compared to our approach. Results also show that the capital figure presents a determinant and nontrivial dependence on the homogeneity and severity of the economic scenario represented in the sample.

Referencias bibliográficas

  • Bangia, A., Diebold, F., Kronimus, A., Schagen, C., Schuermann, T., 2002. Ratings migration and the business cycle, with application to credit portfolio stress testing. Journal of Banking & Finance 26 (2), 445–474.
  • BCBS, 2006. Basel II: International convergence of capital measurement and capital standards - revised version. Bank for International Settlements.
  • BCBS, 2009. Range of practices and issues in economic capital frameworks. BCBS Working Papers.
  • BCBS, 2011. Basel III: A global regulatory framework for more resilient banks and banking systems - revised version. Bank for International Settlements.
  • Bonfim, D., 2009. Credit risk drivers: Evaluating the contribution of firm level information and of macroeconomic dynamics. Journal of Banking & Finance 33 (2), 281–299.
  • Bruche, M., Gonz´alez-Aguado, C., 2010. Recovery rates, default probabilities, and the credit cycle. Journal of Banking & Finance 34 (4), 754–764.
  • Burtschell, X., Gregory, J., Laurent, J., 2007. Beyond the Gaussian copula: Stochastic and local correlation. The Journal of Credit Risk 3 (1), 31–62.
  • Carey, M., 1998. Credit risk in private debt portfolios. The Journal of Finance 53 (4), 1363–1387.
  • Carey, M., 2002. A guide to choosing absolute bank capital requirements. Journal of Banking & Finance 26 (5), 929–951.
  • Crosbie, P., Bohn, J., 2003. Modeling default risk. KMV Corporation Working Paper.
  • Crouhy, M., Galai, D., Mark, R., 2000. A comparative analysis of current credit risk models. Journal of Banking & Finance 24 (1- 2), 59–117.
  • Daníelsson, J., 2002. The emperor has no clothes: Limits to risk modelling. Journal of Banking & Finance 26 (7), 1273–1296.
  • Doob, J. L., 1953. Stochastic Processes. John Wiley and Sons, Inc., New York.
  • Drumond, I., 2009. Bank capital requirements, business cycle fluctuations and the basel accords: A synthesis. Journal of Economic Surveys 23 (5), 798–830.
  • Duffie, D., Saita, L., Wang, K., 2007. Multi-period corporate default prediction with stochastic covariates. Journal of Financial Economics 83 (3), 635–665.
  • Estrella, A., 2004. The cyclical behavior of optimal bank capital. Journal of Banking & Finance 28 (6), 1469–1498.
  • Festic, M., Kavkler, A., Repina, S., 2011. The macroeconomic sources of systemic risk in the banking sectors of five new E.U. member states. Journal of Banking & Finance 35 (2), 310–322.
  • Frey, R., McNeil, A., 2003. Dependent defaults in models of portfolio credit risk. The Journal of Risk 6, 59–92.
  • Gordy, M., 2000. A comparative anatomy of credit risk models. Journal of Banking & Finance 24 (1-2), 119–149.
  • Gordy, M., 2003. A risk-factor model foundation for ratings-based bank capital rules. Journal of Financial Intermediation 12 (3), 199–232.
  • Gordy, M., Howells, B., 2006. Procyclicality in Basel II: Can we treat the disease without killing the patient? Journal of Financial Intermediation 15 (3), 395–417.
  • Hall, A. D., Anderson, H. M., Granger, C. W., 1992. A cointegration analysis of treasury bill yields. The Review of Economics and Statistics 74 (1), 116–126.
  • Hamilton, J., 1989. A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica 57 (2), 357–384.
  • Jarrow, R., Turnbull, S., 2000. The intersection of market and credit risk. Journal of Banking & Finance 24 (1-2), 271–299.
  • Jones, D., 2000. Emerging problems with the Basel Capital Accord: Regulatory capital arbitrage and related issues. Journal of Banking & Finance 24 (1-2), 35–58.
  • Kerkhof, J., Melenberg, B., Schumacher, H., 2010. Model risk and capital reserves. Journal of Banking & Finance 34 (1), 267–279.
  • Koopman, S., Lucas, A., Klaassen, P., 2005. Empirical credit cycles and capital buffer formation. Journal of Banking & Finance 29 (12), 3159–3179.
  • Lee, Y., Poon, S.-H., 2014. Forecasting and decomposition of portfolio credit risk using macroeconomic and frailty factors. Journal of Economic Dynamics and Control 41, 69–92.
  • Lucas, A., Klaassen, P., 2006. Discrete versus continuous state switching models for portfolio credit risk. Journal of Banking & Finance 30 (1), 23–35.
  • Marcucci, J., Quagliariello, M., 2009. Asymmetric effects of the business cycle on bank credit risk. Journal of Banking & Finance 33 (9), 1624–1635.
  • McLachlan, G., Peel, D., 2000. Finite mixture models. Wiley-Interscience
  • Nicolau, J., 2002. Stationary processes that look like random walks - The bounded random walk process in discrete and continuous time. Econometric Theory 18 (1), 99–118.
  • Pederzoli, C., Torricelli, C., 2005. Capital requirements and business cycle regimes: Forward-looking modelling of default probabilities. Journal of Banking & Finance 29 (12), 3121–3140.
  • Pesaran, M., Schuermann, T., Treutler, B., Weiner, S., 2006. Macroeconomic dynamics and credit risk: a global perspective. Journal of Money, Credit, and Banking 38 (5), 1211–1261. R
  • Repullo, R., Suarez, J., 2008. The procyclical effects of basel II. CEPR Discussion Papers.
  • Rösch, D., Scheule, H., 2004. Forecasting retail portfolio credit risk. Journal of Risk Finance 5 (2), 16–32.
  • Rösch, D., Scheule, H., 2010. Downturn credit portfolio risk, regulatory capital and prudential incentives. International Review of Finance 10 (2), 185–207.
  • Scheff´e, H., 1947. A useful convergence theorem for probability distributions. The Annals of Mathematical Statistics 18 (3), 434–438.
  • Sorge, M., Virolainen, K., 2006. A comparative analysis of macro stress-testing methodologies with application to Finland. Journal of Financial Stability 2 (2), 113–151.
  • Tasche, D., 2002. Expected shortfall and beyond. Journal of Banking & Finance 26 (7), 1519–1533.
  • Truck, S., Rachev, S. T., 2005. Credit portfolio risk and probability of default confidence sets through the business cycle. The Journal of Credit Risk 1 (4), 61–88.
  • Vasicek, O., 2002. The distribution of loan portfolio value. Risk 15 (12), 160–162.
  • Wilson, T., 1997a. Credit portfolio risk I. Risk 10 (9), 111–117.
  • Wilson, T., 1997b. Credit portfolio risk II. Risk 10 (10), 56–61.
Fuente de los datos: Dialnet