Loss Given Default Estimating by the Conditional Minimum Value
Mustapha Ammari and
Additional contact information
Mustapha Ammari: National School of Applied Sciences (ENSA), IBN Zohr Agadir 80350, Morocco,
Ghizlane Lakhnati: National School of Applied Sciences (ENSA), IBN Zohr Agadir 80350, Morocco.
International Journal of Economics and Financial Issues, 2017, vol. 7, issue 3, 779-785
The Basel Committee offers banks the opportunity to estimate loss given default (LGD) if they wish to calculate their own value for the capital required to cover credit losses. The flexibility to determine LGD values tailored to a bank’s portfolio will likely be a motivation for a bank to want to move from the foundation to the advanced internal ratings-based approach. The importance of estimating LGD stems from the fact that a lender’s expected loss is the product of the probability of default, the credit exposure at the time of default and the LGD. The Mertonian approach is used for LGD estimation. In this paper, we estimated the (LGD) parameter, using the Merton model, by the introduction of a new parameter which called the conditional minimum value. Four components have been developed in this work: Estimation of conditional minimum, estimation of the LGD, development of a practical component, and finally validation of the proposed model.
Keywords: Credit Risk Modeling; Loss Given Default; Rating Model; Basel 2; Merton’s Model; Backtesting (search for similar items in EconPapers)
JEL-codes: G17 G21 G24 G28 G32 G38 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2017-03-99
Access Statistics for this article
International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk
More articles in International Journal of Economics and Financial Issues from Econjournals
Series data maintained by Ilhan Ozturk ().