The Single Risk Factor Approach to Capital Charges in Case of Correlated Loss Given Default Rates

9 Pages Posted: 15 Apr 2004

See all articles by Dirk Tasche

Dirk Tasche

Swiss Financial Market Supervisory Authority (FINMA)

Date Written: February 17, 2004

Abstract

A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for capital charges are numerically compared to the current proposals by the Basel Committee on Banking Supervision.

Keywords: Regulatory capital charge, loss given default (LGD)

JEL Classification: G28, G21

Suggested Citation

Tasche, Dirk, The Single Risk Factor Approach to Capital Charges in Case of Correlated Loss Given Default Rates (February 17, 2004). Available at SSRN: https://ssrn.com/abstract=510982 or http://dx.doi.org/10.2139/ssrn.510982

Dirk Tasche (Contact Author)

Swiss Financial Market Supervisory Authority (FINMA) ( email )

Einsteinstrasse 2
Bern, 3003
Switzerland

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