Abstract

This study proposes a novel time-varying credit risk model to describe the cyclicality and asymmetry of asset correlation in credit portfolios. Our proposed model is developed based on a GJR-GARCH type volatility and copula-based conditional dependence. We prove that our model outperforms the regulatory model for the U.S. credit portfolios with strong empirical evidence of cyclical and asymmetric asset correlation. Furthermore, we argue that Basel’s criteria of asset correlation may be insufficient during economic downturns.

Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.