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Loss Given Default Modelling under the Asymptotic Single Risk Factor Assumption

Kim, Joocheol and Kim, KiHyung (2006): Loss Given Default Modelling under the Asymptotic Single Risk Factor Assumption. Published in: Asia-Pacific Journal of Financial Studies , Vol. 36, No. 2 (2007): pp. 223-236.

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Abstract

The proposals of the Basel Committee on Banking Supervision for the revision of minimum requirements for bank's risk capital leave the quanti¯cation of loss-given-default (LGD) parameter used for capital calculation unspeci¯ed. This paper proposes a new methodology for incorporating LGD parameter explicitly into the Basel risk weight function. Numerical examples based on the new methodology are compared to the current proposals of the Basel committee on Banking Supervision.

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