Basel II Capital Adequacy : Computing the "fair" Capital Charge for Loan Commitment "True" Credit Risk

Abstract : This research makes two contributions: (i) to price analytically put option and extension premium embedded in a borrower-extendible commitment, and (ii) to compute the "fair" capital charge that corresponds to the commitment "true" credit risk. In doing so, the procedure replaces the BIS accountingbased concepts of credit-conversion factor, principal-risk factor, and initial term to maturity of irrevocable commitments with the market-based concepts of exercise-cum-takedown proportion and put value implicit in the borrower-extendible commitment, respectively. Finally, the approach is developed one step further to account for the borrowers' risk ratings by public credit agencies; this results in a two-dimensional (timestate of nature) risk-weighting system that applies to all commitment types.
Document type :
Journal articles
Liste complète des métadonnées

https://hal-rbs.archives-ouvertes.fr/hal-00566596
Contributor : Jérémy Savey <>
Submitted on : Wednesday, February 16, 2011 - 4:23:49 PM
Last modification on : Friday, April 19, 2019 - 2:54:15 PM

Identifiers

Collections

RBS

Citation

J.P Chateau, Jian Wu. Basel II Capital Adequacy : Computing the "fair" Capital Charge for Loan Commitment "True" Credit Risk. International Review of Financial Analysis, Elsevier, 2007, vol. 16 (n° 1), pp. 1-21. ⟨10.1016/j.irfa.2004.12.002⟩. ⟨hal-00566596⟩

Share

Metrics

Record views

174