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A bank has a USD 100 million portfolio of loans with a PD of 0.75%. What is the 99.9 percentile of the default rate
A bank has a USD 100 million portfolio of loans with a PD of 0.75%. What is the 99.9 percentile of the default rate given by the Vasicek model? Assume a correlation parameter of 0.2. If the recovery rate in the event of default is 30%, what is the required regulatory capital? Hint: the formula for the required regulatory capital is (WCDR-PD) X LGD X EAD. For economic capital purposes, a bank uses a 99.97% confidence level. What is the economic capital in the situation considered in the previous two questions?
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The question youve presented involves the Vasicek model which is a probabilistic approach to assess the credit risk of a loan portfolio To answer each part of the question we need to perform several c...
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Bank Management and Financial Services
Authors: Peter Rose, Sylvia Hudgins
9th edition
78034671, 978-0078034671
