A Note on the Vasicek’s Model with the Logistic Distribution

Jiří Witzany

No 2013/01, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: The paper argues that it would be natural to replace the standard normal distribution function by the logistic function in the regulatory Basel II (Vasicek’s) formula. Such a model would be in fact consistent with the standard logistic regression PD modeling approach. An empirical study based on US commercial bank’s loan historical delinquency rates re-estimates the default correlations and unexpected losses for the normal and logistic distribution models. The results indicate that the capital requirements could be up to 100% higher if the normal Vasicek’s model was replaced by the logistic one.

Keywords: credit risk; Basel II regulation; default rates (search for similar items in EconPapers)
JEL-codes: C51 G20 G28 (search for similar items in EconPapers)
Pages: 16pages
Date: 2013-01, Revised 2013-01
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (4)

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