Advanced

Nordic Banks - Credit Risk and Risk Linkages

Mahlanen, Erik LU and Fransén Eklund, Isabel LU (2015) NEKN05 20151
Department of Economics
Abstract
The recent global financial crisis has once again shown how fragile the financial system is. This essay investigates the credit risk in the Nordic banking sector by measuring the probability of default of the six major Nordic banks. This is done by using the Merton (1974) model which utilizes stock prices as well as balance sheet data. The results are compared with an approach first suggested by Hall and Miles (1990) which relies solely on stock market prices. In order to highlight the risk of a highly concentrated banking sector, the essay also investigates the spillover effects from one bank to another. The essay follows the example of Adrian and Brunnermeier (2011) that have developed the commonly used VaR into CoVaR, a risk measure... (More)
The recent global financial crisis has once again shown how fragile the financial system is. This essay investigates the credit risk in the Nordic banking sector by measuring the probability of default of the six major Nordic banks. This is done by using the Merton (1974) model which utilizes stock prices as well as balance sheet data. The results are compared with an approach first suggested by Hall and Miles (1990) which relies solely on stock market prices. In order to highlight the risk of a highly concentrated banking sector, the essay also investigates the spillover effects from one bank to another. The essay follows the example of Adrian and Brunnermeier (2011) that have developed the commonly used VaR into CoVaR, a risk measure that takes systemic risk into account. (Less)
Please use this url to cite or link to this publication:
author
Mahlanen, Erik LU and Fransén Eklund, Isabel LU
supervisor
organization
course
NEKN05 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
banking crisis, probability of default, Merton, Hall and Miles, VaR, CoVaR
language
English
id
5474119
date added to LUP
2015-06-30 10:04:33
date last changed
2015-06-30 10:04:33
@misc{5474119,
  abstract     = {The recent global financial crisis has once again shown how fragile the financial system is. This essay investigates the credit risk in the Nordic banking sector by measuring the probability of default of the six major Nordic banks. This is done by using the Merton (1974) model which utilizes stock prices as well as balance sheet data. The results are compared with an approach first suggested by Hall and Miles (1990) which relies solely on stock market prices. In order to highlight the risk of a highly concentrated banking sector, the essay also investigates the spillover effects from one bank to another. The essay follows the example of Adrian and Brunnermeier (2011) that have developed the commonly used VaR into CoVaR, a risk measure that takes systemic risk into account.},
  author       = {Mahlanen, Erik and Fransén Eklund, Isabel},
  keyword      = {banking crisis,probability of default,Merton,Hall and Miles,VaR,CoVaR},
  language     = {eng},
  note         = {Student Paper},
  title        = {Nordic Banks - Credit Risk and Risk Linkages},
  year         = {2015},
}