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Evaluation of Default Risk for The Brazilian Banking Sector

Marcelo Takami and Benjamin Tabak

No 135, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper employs new methods to measure and monitor risk in the Brazilian banking sector. We prove that the option-based risk measure is negatively sensitive to interest rates. As this is an important issue for emerging market economies, the risk measures are built as deviations from mean. Additionally, the option-based indicator is compared with market-based financial fragility indicators. Results show that these indicators are useful for risk managers and regulators, especially during crisis. Furthermore, option-based methods are preferable to classify banks in periods of high distress, such as the banking crises that occurred in the early nineties in Brazil.

Date: 2007-05
New Economics Papers: this item is included in nep-ban and nep-rmg
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