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Title:Systematic credit cycle risk of financial collaterals: Modelling and evidence PDF Logo
Authors:Gürtler, Marc
Heithecker, Dirk
Issue Date:2005
Series/Report no.:Working papers // Institut für Finanzwirtschaft, Technische Universität Braunschweig FW15V2
Abstract:According to the new capital adequacy framework (Basel II) finally adopted by the Basel Committee in June 2004 the eligibility of collaterals, especially financial collaterals, is extended in comparison to the existing rules. However, financial assets are valued conservatively in the credit context which suggests a strong correlation between collaterals and credit default rates. This paper discusses the impact of the dependency of financial collaterals and default rates on credit risk. Therefore, a general calculation framework for the loss rate of collateralized loans is given and an analytical solution for the valuation of financial collaterals is presented. Finally, the model is applied on empirical data of German insolvencies and German capital markets.
Subjects:Basel II
Capital Adequacy Requirements
Value at Risk
Loss Given Default
Probability of Default
Collateral Valuation
Document Type:Working Paper
Appears in Collections:Working Paper Series, Institut für Finanzwirtschaft, TU Braunschweig

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