The correlation debate

In response to an article on asset value correlations for retail banking portfolios, published in the July issue of Risk, Ashish Dev of KeyCorp argues that the current Basel II rules are slightly too liberal for high-quality credit cards and overly conservative for low-quality cards

These remarks are in response to an article published in the July issue of Risk (Correlation Confusion, pages 59-61). Michael Pykhtin (now at Bank of America) and I have been deeply involved in the Basel II formulation process and contributed to the Basel II securitisation ratings-based approach (RBA) rules - the RBA was calibrated to the Pykhtin-Dev model, published in Risk in May 2002 (pages S16-S20) and January 2003 (pages 113-116). We were also involved in formulating the correlations - or

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