Technical paper/Expected loss

Understanding the expected loss debate

The final draft of the new global Accord on bank regulatory capital – Basel II – has been delayed. A critical and unresolved issue is whether banks should include expected losses in their measure of credit risk. The IMF's Paul Kupiec reports on efforts…

Unexpected recovery risk

For credit portfolio managers, the priority is to properly incorporate recovery rates into existingmodels. Here, Michael Pykhtin improves upon earlier approaches, allowing recovery rates todepend on the idiosyncratic part of a borrower's asset return, in…

Unexpected recovery risk

For credit portfolio managers, the priority is to properly incorporate recovery rates into existing models. Here, Michael Pykhtin improves upon earlier approaches, allowing recovery rates to depend on the idiosyncratic part of a borrower’s asset return,…

Calculating portfolio loss

For credit portfolios, analytical methods work best for tail risk, while Monte Carlo is used to model expected loss. However, products such as CDOs require a model for the entire distribution. Sandro Merino and Mark Nyfeler meet the challenge by…

Basel II - Rules and Models

The proposed operational risk charge remains one of the most contentious areas of the new Basel Accord. Carol Alexander reviews the current proposals in the context of various simple models, and argues that practical implementation will require the use…

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