Annual Default Rates and Probably Less Than Long-Run Average Annual Default Rates

Nicholas Kiefer ()

Working Papers from Cornell University, Center for Analytic Economics

Abstract: Banks using either the Foundation or Advanced option of the Internal Ratings Based approach to credit risk under Basel II must estimate long-run annual average default probabilities for buckets of homogeneous assets. The one-factor model underlying the capital calculations in Basel II has implications for the distribution of average (across assets) default rates over time. One of these implications is that the average default rate in any period is probably smaller than the overall average default rate (over time and assets). The lesson for practioners is that the short-term default experience of new, very safe assets is likely to underpredict the true long-run default rate for these assets.

Date: 2008-05
New Economics Papers: this item is included in nep-ban and nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cae.economics.cornell.edu/08-03.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:corcae:08-03

Access Statistics for this paper

More papers in Working Papers from Cornell University, Center for Analytic Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().