An axiomatic approach to default risk and model uncertainty in rating systems
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We discuss different properties and representations of default risk measures via monetary risk measures, families of related tail risk measures, and Choquet capacities. In a second step, we turn our focus on default risk measures, which are given as worst-case PDs and distorted PDs. The latter are frequently used in order to take into account model risk for the computation of capital requirements through risk-weighted assets (RWAs), as demanded by the Capital Requirement Regulation (CRR). In this context, we discuss the impact of different default risk measures and margins of conservatism on the amount of risk-weighted assets.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
On evaluation of joint risk for non-negative multivariate risks under dependence uncertainty
In this paper, we propose a novel axiomatic approach to evaluating the joint risk of multiple insurance risks under dependence uncertainty. Motivated by both the theory of expected utility and the Cobb-Dauglas utility fu…
The measure of model risk in credit capital requirements
Credit capital requirements in Internal Rating Based approaches require the calibration of two key parameters: the probability of default and the loss-given-default. This letter considers the uncertainty about these two …
Sovereign Default Risk and Uncertainty Premia
This paper studies how international investors' concerns about model misspecification affect sovereign bond spreads. We develop a general equilibrium model of sovereign debt with endogenous default wherein investors fear…
On conditional distortion risk measures under uncertainty
Model uncertainty has been one prominent issue both in the theory of risk measures and in practice such as financial risk management and regulation. Motivated by this observation, in this paper, we take a new perspective…
PositionBayesian Estimation of Corporate Default Spreads
Risk-averse investors often wish to exclude stocks from their portfolios that bear high credit risk, which is a measure of a firm's likelihood of bankruptcy. This risk is commonly estimated by constructing signals from q…