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Structural Credit Modelling and Its Relationship to Market Value at Risk: An Australian Sectoral PerspectiveResearch Papers in Economics
- Publisher
- Wiley
- Copyright
- © The Authors. Journal compilation © 2009 AFAANZ
- ISSN
- 0810-5391
- eISSN
- 1467-629X
- DOI
- 10.1111/j.1467-629X.2009.00294.x
- Publisher site
- See Article on Publisher Site
Abstract
Internal credit risk modelling is important for banks for the calculation of capital adequacy in terms of the Basel Accords, and for the management of sectoral exposure. We examine Credit Value at Risk (VaR), Conditional Credit Value at Risk (Credit CVaR) and the relationship between market and credit risk. Significant association is found between different Credit CVaR methods, and between market and credit risk. Simpler Credit CVaR methods are found to be viable alternatives to more complex methodology. The relationship between market and credit risk is used to develop a new model that allows banks to incorporate industry risk into transition modelling, without macroeconomic analysis.
Journal
Accounting & Finance – Wiley
Published: Sep 1, 2009