Extending Basel Regulatory Capital Requirement under Economic Downturns
This paper studies credit risk management in banking industry and proposes a generic model for corporate loan portfolio loss distribution in economic downturns. Basel assumes a one-factor Gaussian copula for default correlations and introduces the regulatory capital on the ground of Vasicek process...
| Main Authors: | , |
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| Format: | Article |
| Language: | fas |
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Allameh Tabataba'i University Press
2018-09-01
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| Series: | فصلنامه پژوهشهای اقتصادی ایران |
| Subjects: | |
| Online Access: | https://ijer.atu.ac.ir/article_9516_9e7ad1b8e9dcbb1926fdabe407e16873.pdf |
| _version_ | 1797369296669638656 |
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| author | Amir Azamtarrahian Saeed Asadi |
| author_facet | Amir Azamtarrahian Saeed Asadi |
| author_sort | Amir Azamtarrahian |
| collection | DOAJ |
| description | This paper studies credit risk management in banking industry and proposes a generic model for corporate loan portfolio loss distribution in economic downturns. Basel assumes a one-factor Gaussian copula for default correlations and introduces the regulatory capital on the ground of Vasicek process that works acceptably well in normal economic situations but not in recessions. In this paper, one-factor t-student copula is used for dependence structure of probability of Defaults (PDs), and Basel has been extended by introducing correlated PDs and Recovery Rates (RRs) through Clayton copula and the required economic capital is calculated accordingly. Finally, our findings suggest that Expected Shortfall (ES) safeguards banks against losses beyond the VaR level and it is a better risk metric in economic downturns comparing to VaR. |
| first_indexed | 2024-03-08T17:44:41Z |
| format | Article |
| id | doaj.art-31311569b1e049ca9c3ac80045828876 |
| institution | Directory Open Access Journal |
| issn | 1726-0728 2476-6445 |
| language | fas |
| last_indexed | 2024-03-08T17:44:41Z |
| publishDate | 2018-09-01 |
| publisher | Allameh Tabataba'i University Press |
| record_format | Article |
| series | فصلنامه پژوهشهای اقتصادی ایران |
| spelling | doaj.art-31311569b1e049ca9c3ac800458288762024-01-02T10:29:30ZfasAllameh Tabataba'i University Pressفصلنامه پژوهشهای اقتصادی ایران1726-07282476-64452018-09-01237615918410.22054/ijer.2018.95169516Extending Basel Regulatory Capital Requirement under Economic DownturnsAmir Azamtarrahian0Saeed Asadi1Investment Analyst, Postgraduate of Corporate Finance, Risk Management Area of Study, Saint Petersburg State University, RussiaPostgraduate of Financial Engineering, Tarbiat Modarres University, Tehran, IranThis paper studies credit risk management in banking industry and proposes a generic model for corporate loan portfolio loss distribution in economic downturns. Basel assumes a one-factor Gaussian copula for default correlations and introduces the regulatory capital on the ground of Vasicek process that works acceptably well in normal economic situations but not in recessions. In this paper, one-factor t-student copula is used for dependence structure of probability of Defaults (PDs), and Basel has been extended by introducing correlated PDs and Recovery Rates (RRs) through Clayton copula and the required economic capital is calculated accordingly. Finally, our findings suggest that Expected Shortfall (ES) safeguards banks against losses beyond the VaR level and it is a better risk metric in economic downturns comparing to VaR.https://ijer.atu.ac.ir/article_9516_9e7ad1b8e9dcbb1926fdabe407e16873.pdfcredit riskdefault correlationcopulaportfolio loss distributionbasel |
| spellingShingle | Amir Azamtarrahian Saeed Asadi Extending Basel Regulatory Capital Requirement under Economic Downturns فصلنامه پژوهشهای اقتصادی ایران credit risk default correlation copula portfolio loss distribution basel |
| title | Extending Basel Regulatory Capital Requirement under Economic Downturns |
| title_full | Extending Basel Regulatory Capital Requirement under Economic Downturns |
| title_fullStr | Extending Basel Regulatory Capital Requirement under Economic Downturns |
| title_full_unstemmed | Extending Basel Regulatory Capital Requirement under Economic Downturns |
| title_short | Extending Basel Regulatory Capital Requirement under Economic Downturns |
| title_sort | extending basel regulatory capital requirement under economic downturns |
| topic | credit risk default correlation copula portfolio loss distribution basel |
| url | https://ijer.atu.ac.ir/article_9516_9e7ad1b8e9dcbb1926fdabe407e16873.pdf |
| work_keys_str_mv | AT amirazamtarrahian extendingbaselregulatorycapitalrequirementundereconomicdownturns AT saeedasadi extendingbaselregulatorycapitalrequirementundereconomicdownturns |