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http://dspace.mediu.edu.my:8181/xmlui/handle/10419/19751| Title: | Measuring business sector concentration by an infection model |
| Keywords: | C20 C15 G21 ddc:330 asset correlation concentration risk credit risk multi-factor model value-at-risk Kreditrisiko Wirtschaftskonzentration Value at Risk Kreditwürdigkeit Spillover-Effekt Schätzung Theorie Deutschland Kreditkonzentration |
| Issue Date: | 16-Oct-2013 |
| Description: | Results from portfolio models for credit risk tell us that loan concentration in certain industry sectors can substantially increase the value-at-risk (VaR). The purpose of this paper is to analyze whether a tractable "infection model" can provide a meaningful estimate of the impact of concentration risk on the VaR. I apply rather parsimonious data requirements, which are comparable to those for Moody's Binomial Expansion Technique (BET) and considerably lower than for a multi-factor model. The infection model extends the BET model by introducing default infection into the hypothetical portfolio on which the real portfolio is mapped in order to obtain a simple solution for the VaR. The infection probability is calibrated for a range of typical values of input parameters, which capture the concentration of a portfolio in industry sectors, default dependencies between exposures and their credit quality. The accuracy of the new model is measured for test portfolios with a realistic industry-sector composition, obtained from the German central credit register. I find that a carefully calibrated infection model provides a reasonably close approximation to the VaR obtained from a multi-factor model and outperforms by far the BET model. The simulation results suggest that the calibrated infection model promises to provide a fit-for-purpose tool to measure concentration risk in business sectors that could be useful for risk managers and banking supervisors alike. |
| URI: | http://koha.mediu.edu.my:8181/xmlui/handle/10419/19751 |
| Other Identifiers: | http://hdl.handle.net/10419/19751 ppn:512740860 RePEc:zbw:bubdp2:4359 |
| Appears in Collections: | EconStor |
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