Default-Implied Asset Correlation: Empirical Study for Moroccan companies
The asset correlation is a key regulatory parameter in the calculation of the capital charge for credit risk under the second Baselagreement. This parameter has been set in a uniform manner for all banking institutions wishing to integrate the Baselframework. However, estimation of the asset correl...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
EconJournals
2017-04-01
|
| Series: | International Journal of Economics and Financial Issues |
| Online Access: | https://www.econjournals.com/index.php/ijefi/article/view/4046 |
| _version_ | 1797908294449233920 |
|---|---|
| author | Mustapha Ammari Ghizlane Lakhnati |
| author_facet | Mustapha Ammari Ghizlane Lakhnati |
| author_sort | Mustapha Ammari |
| collection | DOAJ |
| description |
The asset correlation is a key regulatory parameter in the calculation of the capital charge for credit risk under the second Baselagreement. This parameter has been set in a uniform manner for all banking institutions wishing to integrate the Baselframework. However, estimation of the asset correlation has not often been discussed, even though it substantially affects the estimates of the Unexpected Loss. Importantly, it is essential that financial institutions use the appropriate method and data to calculate the asset correlation in order to compute the Unexpected Loss accurately. In this work, we developed the theoretical framework for the calculation of the Default-Implied Asset Correlation. Using the developed model, we calculated the correlation of the assets that was decreasing according to the probability of default. By comparing our model with the Baselmodel, we found a significant difference on the asset correlation value and the regulatory capital coefficient. This resulted in a large Risk-Weighted Assets difference between our model and the Basel Framework.
Keywords: Default-Implied Asset Correlation, Credit Risk Modeling, Asymptotic Single Risk Factor.
JEL Classifications: G17, G21, G24, G28, G32, G38
|
| first_indexed | 2024-04-10T10:50:27Z |
| format | Article |
| id | doaj.art-eb01537d9f6f4b4e9c91e90b9fd38a18 |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T10:50:27Z |
| publishDate | 2017-04-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-eb01537d9f6f4b4e9c91e90b9fd38a182023-02-15T16:20:10ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382017-04-0172Default-Implied Asset Correlation: Empirical Study for Moroccan companiesMustapha Ammari0Ghizlane Lakhnati1National School of Applied SciencesNational School of Applied Sciences (ENSA), IBN Zohr Agadir 80350, Morocco. The asset correlation is a key regulatory parameter in the calculation of the capital charge for credit risk under the second Baselagreement. This parameter has been set in a uniform manner for all banking institutions wishing to integrate the Baselframework. However, estimation of the asset correlation has not often been discussed, even though it substantially affects the estimates of the Unexpected Loss. Importantly, it is essential that financial institutions use the appropriate method and data to calculate the asset correlation in order to compute the Unexpected Loss accurately. In this work, we developed the theoretical framework for the calculation of the Default-Implied Asset Correlation. Using the developed model, we calculated the correlation of the assets that was decreasing according to the probability of default. By comparing our model with the Baselmodel, we found a significant difference on the asset correlation value and the regulatory capital coefficient. This resulted in a large Risk-Weighted Assets difference between our model and the Basel Framework. Keywords: Default-Implied Asset Correlation, Credit Risk Modeling, Asymptotic Single Risk Factor. JEL Classifications: G17, G21, G24, G28, G32, G38 https://www.econjournals.com/index.php/ijefi/article/view/4046 |
| spellingShingle | Mustapha Ammari Ghizlane Lakhnati Default-Implied Asset Correlation: Empirical Study for Moroccan companies International Journal of Economics and Financial Issues |
| title | Default-Implied Asset Correlation: Empirical Study for Moroccan companies |
| title_full | Default-Implied Asset Correlation: Empirical Study for Moroccan companies |
| title_fullStr | Default-Implied Asset Correlation: Empirical Study for Moroccan companies |
| title_full_unstemmed | Default-Implied Asset Correlation: Empirical Study for Moroccan companies |
| title_short | Default-Implied Asset Correlation: Empirical Study for Moroccan companies |
| title_sort | default implied asset correlation empirical study for moroccan companies |
| url | https://www.econjournals.com/index.php/ijefi/article/view/4046 |
| work_keys_str_mv | AT mustaphaammari defaultimpliedassetcorrelationempiricalstudyformoroccancompanies AT ghizlanelakhnati defaultimpliedassetcorrelationempiricalstudyformoroccancompanies |