Calculating Value-at-Risk Using the Granularity Adjustment Method in the Portfolio Credit Risk Model with Random Loss Given Default

Yi-Ping Chang (), Jing-Xiu Lin and Chih-Tun Yu
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Yi-Ping Chang: Department of Financial Engineering and Actuarial Mathematics, Soochow University, Taiwan
Jing-Xiu Lin: Department of Financial Engineering and Actuarial Mathematics, Soochow University, Taiwan
Chih-Tun Yu: Department of Statistics, National Chengchi University, Taiwan

Journal of Economics and Management, 2016, vol. 12, issue 2, 157-176

Abstract: According to the Basel Committee on Banking Supervision (BCBS), the internal ratings-based approach of Basel II and Basel III allows a bank to calculate the Valueat-Risk (VaR) for portfolio credit risk by using its own credit risk model. In this paper we use the Granularity Adjustment (GA) method proposed by Martin and Wilde (2002) to calculate VaR in the portfolio credit risk model with random loss given default. Moreover, we utilize a Monte Carlo simulation to study the impact of concentration risk on VaR.

Keywords: granularity adjustment method; loss given default; portfolio credit risk model; Value-at-Risk (search for similar items in EconPapers)
JEL-codes: C15 G32 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:jec:journl:v:12:y:2016:i:2:p:157-176

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