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An attempt to derive the Risk Weight Function for the bank

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  • Nguyen, Van Phuong

Abstract

According to the Basel Accord II, one of the key factors in the Internal-Ratings Based (IRB) framework is the Risk Weight Function (RWF). Indeed, it uses four risk components including PD, LGD, EAD, and M as input to yield the capital requirement and thereby Risk-Weighted Asset (RWA). Given the extremely important role of the Risk Weight Function, in this project, we aim to derive it mathematically.

Suggested Citation

  • Nguyen, Van Phuong, 2019. "An attempt to derive the Risk Weight Function for the bank," MPRA Paper 100631, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100631
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    File URL: https://mpra.ub.uni-muenchen.de/100631/1/MPRA_paper_100631.pdf
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    Cited by:

    1. Leogrande, Angelo & Costantiello, Alberto & Laureti, Lucio & Matarrese, Marco Maria, 2022. "The Determinants of Risk Weighted Asset in Europe," MPRA Paper 112924, University Library of Munich, Germany.

    More about this item

    Keywords

    Basel Accord II; Homogenous Loan Portfolio; Loss Distribution; Expected Loss; Unexpected Loss; Capital Requirement; Risk-Weight Functions.;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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