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The Importance of Estimation Uncertainty in a Multi-Rating Class Loan Portfolio

Henry Dannenberg ()

No 11/2011, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: This article seeks to make an assessment of estimation uncertainty in a multi-rating class loan portfolio. Relationships are established between estimation uncertainty and parameters such as probability of default, intra- and inter-rating class correlation, degree of inhomogeneity, number of rating classes used, number of debtors and number of historical periods used for parameter estimations. In addition, by using an exemplary portfolio based on Moody's ratings, it becomes clear that estimation uncertainty does indeed have an effect on interest rates.

Keywords: credit portfolio risk; estimation uncertainty; bootstrapping; economic equity; Kreditrisikobewertung; Schätzunsicherheit; Bootstrapping; ökonomisches Eigenkapital (search for similar items in EconPapers)
JEL-codes: C15 D81 G11 (search for similar items in EconPapers)
Date: 2011
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