Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/37025
Authors: 
Ebert, Sebastian
Lütkebohmert, Eva
Year of Publication: 
2009
Series/Report no.: 
Bonn Econ Discussion Papers 10/2009
Abstract: 
Within the Internal Ratings-Based (IRB) approach of Basel II it is assumed that idiosyncratic risk has been fully diversi?ed away. The impact of undiversi?ed idiosyncratic risk on portfolio Value-at-Risk can be quanti?ed via a granularity adjustment (GA). We provide an analytic formula for the GA in an extended single- factor CreditRisk+ setting incorporating double default e?ects. It accounts for guarantees and their e?ect of reducing credit risk in the portfolio. Our general GA very well suits for application under Pillar 2 of Basel II as the data inputs are drawn from quantities already required for the calculation of IRB capital charges.
Subjects: 
analytic approximation
Basel II
counterparty risk
double default
granularity adjustment
IRB approach
securitization
JEL: 
G31
G28
Document Type: 
Working Paper
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