Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153878
Authors: 
Eichberger, Jürgen
Rheinberger, Klaus
Summer, Martin
Year of Publication: 
2012
Series/Report no.: 
ECB Working Paper 1445
Abstract: 
Credit risk models used in quantitative risk management treat credit risk analysis conceptually like a single person decision problem. From this perspective an exogenous source of risk drives the fundamental parameters of credit risk: probability of default, exposure at default and the recovery rate. In reality these parameters are the result of the interaction of many market participants: They are endogenous. We develop a general equilibrium model with endogenous credit risk that can be viewed as an extension of the capital asset pricing model. We analyze equilibrium prices of securities as well as equilibrium allocations in the presence of credit risk. We use the model to discuss the conceptual underpinnings of the approach to risk weight calibration for credit risk taken by the Basel Committee.
Subjects: 
banking regulation
Credit risk
endogenous risk
systemic risk
JEL: 
G32
G33
G01
D52
Document Type: 
Working Paper

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