Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324291 
Year of Publication: 
2023
Series/Report no.: 
Center for Mathematical Economics Working Papers No. 725
Publisher: 
Bielefeld University, Center for Mathematical Economics (IMW), Bielefeld
Abstract: 
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We discuss different properties and representations of default risk measures via monetary risk measures, families of related tail risk measures, and Choquet capacities. In a second step, we turn our focus on default risk measures, which are given as worst-case PDs and distorted PDs. The latter are frequently used in order to take into account model risk for the computation of capital requirements through risk-weighted assets (RWAs), as demanded by the Capital Requirement Regulation (CRR). In this context, we discuss the impact of different default risk measures and margins of conservatism on the amount of risk-weighted assets.
Subjects: 
default risk measure
model uncertainty
probability of default
Choquet capacity
margin of conservatism
monetary risk measure
value at risk
risk-weighted assets
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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