Simulation based approach for measuring concentration risk

Joocheol Kim and Duyeol Lee

MPRA Paper from University Library of Munich, Germany

Abstract: Asymptotic Single Risk Factor (ASRF) model is used to derive the regulatory capital formula of Internal Ratings-Based approach in the new Basel accord (Basel II). One of the important assumptions in ASRF model for credit risk is that the given portfolio is well diversified so that one can easily calculate the required capital level by focusing only on systematic risk. In real world, however, idiosyncratic risk of a portfolio cannot be fully diversified away, causing the so called concentration risk problem. In this paper we suggest simulation based approach for measuring concentration risk using bank capital dynamic model. This approach is especially suitable for a portfolio with relatively small to medium number of obligors and relatively large sized loans

Keywords: Basel II; ASRF model; credit risk; concentration risk (search for similar items in EconPapers)
JEL-codes: G32 G33 G38 (search for similar items in EconPapers)
Date: 2007-02-01, Revised 2007-04-19
New Economics Papers: this item is included in nep-ban and nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/2968/1/MPRA_paper_2968.pdf original version (application/pdf)

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:pra:mprapa:2968

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().