Premium
Transitional credit modelling and its relationship to market value at risk: an Australian sectoral perspective
Author(s) -
Allen David E.,
Powell Robert
Publication year - 2009
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2009.00294.x
Subject(s) - cvar , credit risk , credit valuation adjustment , expected shortfall , economic capital , economics , market risk , credit crunch , risk management , business , actuarial science , econometrics , credit reference , financial system , finance , microeconomics , profit (economics)
Internal credit risk modelling is important for banks for the calculation of capital adequacy in terms of the Basel Accords, and for the management of sectoral exposure. We examine Credit Value at Risk (VaR), Conditional Credit Value at Risk (Credit CVaR) and the relationship between market and credit risk. Significant association is found between different Credit CVaR methods, and between market and credit risk. Simpler Credit CVaR methods are found to be viable alternatives to more complex methodology. The relationship between market and credit risk is used to develop a new model that allows banks to incorporate industry risk into transition modelling, without macroeconomic analysis.