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Exposure at Default Modeling with Default Intensities

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  • Jiří Witzany

Abstract

The paper provides an overview of the Exposure at Default (EAD) definition, requirements, and estimation methods as set by the Basel II regulation. A new methodology connected to the intensity of default modeling is proposed. The numerical examples show that various estimation techniques may lead to quite different results with intensity of default based model being recommended as the most faithful with respect to a precise probabilistic definition of the EAD parameter.

Suggested Citation

  • Jiří Witzany, 2011. "Exposure at Default Modeling with Default Intensities," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2011(4), pages 20-48.
    • Handle: RePEc:prg:jnlefa:v:2011:y:2011:i:4:id:18:p:20-48
    DOI: 10.18267/j.efaj.18
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    References listed on IDEAS

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    1. Gregorio Moral, 2006. "EAD Estimates for Facilities with Explicit Limits," Springer Books, in: Bernd Engelmann & Robert Rauhmeier (ed.), The Basel II Risk Parameters, chapter 0, pages 197-242, Springer.
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    Cited by:

    1. Frank Ranganai Matenda & Mabutho Sibanda & Eriyoti Chikodza & Victor Gumbo, 2021. "Determinants of corporate exposure at default under distressed economic and financial conditions in a developing economy: the case of Zimbabwe," Risk Management, Palgrave Macmillan, vol. 23(1), pages 123-149, June.
    2. Wattanawongwan, Suttisak & Mues, Christophe & Okhrati, Ramin & Choudhry, Taufiq & So, Mee Chi, 2023. "A mixture model for credit card exposure at default using the GAMLSS framework," International Journal of Forecasting, Elsevier, vol. 39(1), pages 503-518.
    3. Tong, Edward N.C. & Mues, Christophe & Brown, Iain & Thomas, Lyn C., 2016. "Exposure at default models with and without the credit conversion factor," European Journal of Operational Research, Elsevier, vol. 252(3), pages 910-920.

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    More about this item

    Keywords

    Credit risk; Regulatory capital; Exposure at default; Default intensity;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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