Asset correlation, portfolio diversification and regulatory capital in the Basel Capital Accord
Article
Gottschalk, S. 2011. Asset correlation, portfolio diversification and regulatory capital in the Basel Capital Accord. Risk Governance and Control: Financial Markets & Institutions. 1 (3). https://doi.org/10.22495/rgcv1i3art3
Type | Article |
---|---|
Title | Asset correlation, portfolio diversification and regulatory capital in the Basel Capital Accord |
Authors | Gottschalk, S. |
Abstract | In this paper, we analyze the properties of the KMV model of credit portfolio loss. This theoretical model constitutes the cornerstone of Basel II’s Internal Ratings Based(IRB) approach to regulatory capital. Our results show that this model tends to overestimate the probability of portfolio loss when the probability of default of a single firm and the firms’ asset correlations are low. On the contrary, probabilities of portfolio loss are underestimated when the probability of default of a single firm and asset correlations are high. Moreover, the relationship between asset correlation and probability of |
Keywords | Assets; Basel Accord; Regulatory Capital |
Sustainable Development Goals | 9 Industry, innovation and infrastructure |
Middlesex University Theme | Creativity, Culture & Enterprise |
Publisher | Virtus Interpress |
Journal | Risk Governance and Control: Financial Markets & Institutions |
ISSN | 2077-429X |
Electronic | 2077-4303 |
Publication dates | |
Online | 2011 |
Jul 2011 | |
Publication process dates | |
Accepted | 01 Jul 2011 |
Deposited | 21 Mar 2025 |
Output status | Published |
Publisher's version | File Access Level Restricted |
Digital Object Identifier (DOI) | https://doi.org/10.22495/rgcv1i3art3 |
https://repository.mdx.ac.uk/item/qxq64
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