Journal of Credit Risk

An asset drop model as an alternative to the treatment of double defaults within the Basel framework

Sebastian Ebert and Eva Lütkebohmert


In 2005 the internal-ratings-based (IRB) approach of Basel II was enhanced by a "treatment of double default effects" to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several caveats to this approach, and presents a new method of accounting for double default effects. This new asset drop technique can be applied within any structural model of portfolio credit risk. When formulated within the IRB approach, data requirements are moderate and economic capital can still be computed analytically.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

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