The authors introduce a simple numerical algorithm to study banking systems subject to credit risk. The algorithm is based on a model that is completely defined by only two parameters.
The results of this paper show that robust forward-looking statistical models are superior to backward-looking assessments of supervisory compliance, which could lead to less regulatory burden when integrated into the examination process, particularly at…
An internal default risk model: simulation of default times and recovery rates within the new Fundamental Review of the Trading Book framework
This paper presents a new default risk model for market risk that is consistent with these requirements. The recovery rates follow a waterfall model that is based on a minimum entropy principle.
This paper evaluates the operational risk capital requirements of large US banks to determine whether they are forward looking, sensitive to banks’ current exposures and designed to allow for risk mitigation.
In this paper, the authors look at B-tests: methods by which it is possible to identify internal fraud among employees and partners of the bank at an early stage.
This paper proposes an alternative framework for setting banks’ operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism.