Probability of default (pd)
Economic capital model validation: a comparative study
Using a long history of public firm defaults, this study illustrates a validation approach for jointly testing the impact of probability of default and correlation upon economic capital model performance....
In the last three years most European banking groups have chosen to adopt Basel II "advance status". This has required banks to develop statistical models for estimating probability of default, loss given...
Counterparty risk is difficult to include systematically in credit default swap pricing. Reviving Merton’s structural approach – and generalising to higher dimensions – makes it tractable. By Alex...
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More Probability of default (pd) articles
Closing out DVA
The choice of a close-out convention applicable on the default of a derivatives counterparty can have a significant effect on the credit and debit valuation adjustments, as can the order of defaults. Jon Gregory and Ilya German examine this phenomenon...
FSA forces UK banks to assume higher sovereign losses
Behind-the-scenes clampdown sets loss-given-default floor at 45% – and could make UK bonds less attractive
Recursive formulas for the default probability distribution with applications...
The probability distribution of the number of defaults plays an important role in pricing problems of multiple-name credit derivatives. When the group size gets large, it becomes increasingly difficult to obtain its whole distribution. We use a financial...
Volume 6/Number 3, Fall 2012
Steve SatchellTrinity College, University of Cambridge This fall issue of The Journal of Risk Model Validation brings together three papers with a credit focus and one paper that is a more general methodological piece. This latter paper is likely to...
A methodology for point-in-time–through-the-cycle probability of default...
Using a Merton model framework (consistent with Basel II formulas), we develop a methodology for point-in-time (PIT) and through-the-cycle (TTC) probability of default (PD) decomposition in credit risk classification systems, primarily for corporates....
Turkish banks seek freedom as Basel II hits capital ratios
Turkey’s banks are well placed to absorb an increase in capital requirements when the country switches to the Basel II regime this month, but larger institutions are frustrated that the modelling approaches contained in the new rules remain out of bounds....
Modeling exposure at default and loss given default: empirical approaches...
The Basel Accords have created the need to develop and implement models for probability of default (PD), loss given default (LGD) and exposure at default (EAD). Although PD is quite well researched, LGD and EAD lag behind in terms of both theoretical...
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