Modeling default correlation in a US retail loan portfolio

Christian Wolff, Dennis Bams and Magdalena Pisa

No 9205, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper generalizes the existing asymptotic single-factor model to address issues related to industry heterogeneity, default clustering and parameter uncertainty of capital requirement in US retail loan portfolios. We argue that the Basel II capital requirement overstates the riskiness of small businesses even with prudential adjustments. Moreover, our estimates show that both location and spread of loss distribution bare uncertainty. Their shifts over the course of the recent crisis have important risk management implications. The results are based on a unique representative dataset of US small businesses from 2005 to 2011 and give fundamental insights into the US economy.

Keywords: Credit; risk (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (5)

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