Asymmetric asset correlation in credit portfolios

Yongbok Cho and Yongwoong Lee

Finance Research Letters, 2022, vol. 49, issue C

Abstract: This study proposes a novel time-varying credit risk model to describe the cyclicality and asymmetry of asset correlation in credit portfolios. Our proposed model is developed based on a GJR-GARCH type volatility and copula-based conditional dependence. We prove that our model outperforms the regulatory model for the U.S. credit portfolios with strong empirical evidence of cyclical and asymmetric asset correlation. Furthermore, we argue that Basel’s criteria of asset correlation may be insufficient during economic downturns.

Keywords: Asymmetric asset-correlation; Credit portfolio risk; Time-varying risk parameters; Cyclicality; ASRF model; Basel criteria (search for similar items in EconPapers)
JEL-codes: C51 G20 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612322002732
Full text for ScienceDirect subscribers only

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:eee:finlet:v:49:y:2022:i:c:s1544612322002732

DOI: 10.1016/j.frl.2022.103037

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().