Working paper series // Frankfurt School of Finance & Management 102
In 2004 the Basel Committee published an extensive revision of the capital charges which creates more risk sensitive capital requirements for banks. The New Accord called International Convergence of Capital Measurement and Capital Standard provides in its first pillar for a finer measurement of credit risk. Banks that have received supervisory approval to use the Internal Ratings-Based (IRB) approach may rely on their own internal estimates of risk components in determining the capital requirement for a given exposure. The IRB approach is based on measures of unexpected losses (UL) and expected losses (EL). The risk-weight functions produce capital requirements for the UL portion are based on a onefactor (Merton) model which relies furthermore on the assumption of an infinite fine-grained credit portfolio (also known as Vasicek-Model). As Moody´s stated in 2000: Empirical tests verified the log normal distribution for granular pools. we compared both models in order to benchmark the IRB approach with an existing and in practice already verified model which obviously uses similar assumptions. We, therefore, compute the capital requirement or Credit Value at Risk for given portfolios in both approaches respectively and contrast the results.
Basel II Expected Loss Unexpected Loss Kreditrisikomodell logarithmische Normalverteiling Credit Value at Risk