Journal of Credit Risk

Modeling exposure at default, credit conversion factors and the Basel II Accord

Ross Taplin, Huong Minh To and Jarrad Hee


The estimation of exposure at default (EAD) for accounts, together with the estimated probability of default (PD) and loss given default (LGD), is an important component of credit modeling in the Basel II Accord. Nevertheless, little work has appeared in the literature concerning the estimation of EAD. The Basel II Accord implies the use of a credit conversion factor (CCF) for revolving lines of credit, which is the ratio of the estimated additional drawn amount during the period up to 12 months before default over the undrawn amount at the time of estimation. This article uses theoretical arguments and real data to argue that the use of a CCF is unlikely to be appropriate. Alternative modeling approaches for EAD are proposed, and implications for banks attempting to satisfy the Basel II Accord are also discussed.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here