Year: 2007
Author: Güttler, André, Liedtke, >Helge G.
Credit and Capital Markets – Kredit und Kapital, Vol. 40 (2007), Iss. 4 : pp. 527–551
Abstract
We compare four different test approaches for the calibration quality of internal rating systems in the case of dependent default events. Two of them are approximation approaches and two are simulation approaches of one- and multi-factor models. We find that multi-factor models generate more precise results through lower upper bound default rates and narrower confidence intervals. For confidence levels of 95%, the approximation approaches overestimate the upper bound default rates. For low asset correlation, especially for less than 0.5%, the granularity adjustment approach does not deliver reasonable results. For low numbers of debtors, the approximation approaches sharply overestimate the upper bound default rates. Using empirical inter-factor correlations we find that confidence intervals of two-factor models are much tighter compared with the one-factor model. (JEL C6, G21)
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.40.4.527
Credit and Capital Markets – Kredit und Kapital, Vol. 40 (2007), Iss. 4 : pp. 527–551
Published online: 2007-10
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 25
Author Details
-
Abramowitz, Milton and Stegun, Irene A.: Handbook of Mathematical Functions with Formulas, Graphs, and Mathematical Tables, 1972, New York.
Google Scholar -
Alessandrini, Fabio: Credit Risk, Interest Rate Risk, and the Business Cycle, in: Journal of Fixed Income, Vol. 9 (2), 1999, pp. 42-53.
Google Scholar -
BCBS: The Internal Ratings-Based Approach: Supporting Document to the New Basel Capital Accord, Technical Report, Bank for International Settlements, 2001, Basel.
Google Scholar -
BCBS: International Convergence of Capital Measurement and Capital Standards, A Revised Framework, 2004, Basel.
Google Scholar -
Black, Fischer and Cox, John C.: Valuing Corporate Securities: Some Effects of Bond Indenture Provisions, in: Journal of Finance, Vol. 31 (2), 1976, pp. 351-367.
Google Scholar