Responding to the Eurozone Crisis - Applying the Shadow Rating Approach to Determine Economic Capital for Sovereign Exposures
(2014) FMS820 20141Mathematical Statistics
- Abstract (Swedish)
- The recent European sovereign-debt crisis has made it clear that exposures
towards sovereigns contain credit risk. However, according to the Basel framework's
standardized approach banks are not required to hold any regulatory capital
for highly rated sovereigns. In response, this thesis develops a shadow rating
approach model for sovereign probability of default estimation, subsequently
determining economic capital for sovereign exposures within a foundation internal
ratings-based framework. Furthermore, the empirical Bayes estimator is
utilized for low-default portfolio probability of default calibration. The model
is tested on ve homogeneous sub-segments in addition to the entire dataset
at hand. Empirical ndings suggest that... (More) - The recent European sovereign-debt crisis has made it clear that exposures
towards sovereigns contain credit risk. However, according to the Basel framework's
standardized approach banks are not required to hold any regulatory capital
for highly rated sovereigns. In response, this thesis develops a shadow rating
approach model for sovereign probability of default estimation, subsequently
determining economic capital for sovereign exposures within a foundation internal
ratings-based framework. Furthermore, the empirical Bayes estimator is
utilized for low-default portfolio probability of default calibration. The model
is tested on ve homogeneous sub-segments in addition to the entire dataset
at hand. Empirical ndings suggest that the full dataset performs adequately
overall. Nonetheless, model performance is superior for accurately constructed
sub-segments. In addition, economic, monetary and political indicators as well
as banking sector health are found to best replicate S&P's sovereign long-term
issuer credit ratings. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/4276200
- author
- Koskinen Rosemarin, Simon
- supervisor
- organization
- course
- FMS820 20141
- year
- 2014
- type
- H2 - Master's Degree (Two Years)
- subject
- language
- English
- id
- 4276200
- date added to LUP
- 2014-01-29 11:26:16
- date last changed
- 2014-01-29 11:26:16
@misc{4276200, abstract = {{The recent European sovereign-debt crisis has made it clear that exposures towards sovereigns contain credit risk. However, according to the Basel framework's standardized approach banks are not required to hold any regulatory capital for highly rated sovereigns. In response, this thesis develops a shadow rating approach model for sovereign probability of default estimation, subsequently determining economic capital for sovereign exposures within a foundation internal ratings-based framework. Furthermore, the empirical Bayes estimator is utilized for low-default portfolio probability of default calibration. The model is tested on ve homogeneous sub-segments in addition to the entire dataset at hand. Empirical ndings suggest that the full dataset performs adequately overall. Nonetheless, model performance is superior for accurately constructed sub-segments. In addition, economic, monetary and political indicators as well as banking sector health are found to best replicate S&P's sovereign long-term issuer credit ratings.}}, author = {{Koskinen Rosemarin, Simon}}, language = {{eng}}, note = {{Student Paper}}, title = {{Responding to the Eurozone Crisis - Applying the Shadow Rating Approach to Determine Economic Capital for Sovereign Exposures}}, year = {{2014}}, }