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Title:Improved modeling of double default effects in Basel II: An endogenous asset drop model without additional correlation PDF Logo
Authors:Ebert, Sebastian
Lütkebohmert, Eva
Issue Date:2009
Series/Report no.:Bonn econ discussion papers 2009,24
Abstract:In 2005 the Internal Ratings Based (IRB) approach of Basel II was enhanced by a treatment of double default effects to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several severe problems of this approach and presents a new method to account for double default effects. This new asset drop technique canbe applied within any structural model ofportfolio credit risk. When formulated within the IRB approach of Basel II, it is very well suited for practical application as it does not pose extensive data requirements and economic capital can still be computed analytically.
Subjects:Basel II
double default
IRB approach
regulatory capital
structural credit portfolio models
JEL:G31
G28
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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