International Journal of Economics, Finance and Management Sciences
Volume 1, Issue 6, December 2013, Pages: 406-412
Received: Dec. 11, 2013;
Published: Jan. 30, 2014
Views 3015 Downloads 480
Osei Antwi, Mathematics and Statistics Department, Accra Polytechnic, Accra-Ghana
Alice Constance Mensah, Mathematics and Statistics Department, Accra Polytechnic, Accra-Ghana
Martin Owusu Amoamah, Mathematics and Statistics Department, Accra Polytechnic, Accra-Ghana
Dadzie Joseph, Mathematics and Statistics Department, Accra Polytechnic, Accra-Ghana
This paper investigates the complexity involved in the quantitative measurement of Economic Capital and proposes simulation methods as a practical solution for obtaining the loss distribution of a portfolio of obligors. The paper examines a one factor model to generate loss distribution which establishes the necessary ingredients to measure the credit risk quantities in a loan portfolio. The general elements of credit risk modeling are outlined and then a specific model that employs a Monte Carlo simulation is developed. An example is provided that calculates the risk quantities in a loan portfolio from which the Economic Capital in a credit risk portfolio is obtained.
Alice Constance Mensah,
Martin Owusu Amoamah,
Measuring Economic Capital Using Loss Distributions, International Journal of Economics, Finance and Management Sciences.
Vol. 1, No. 6,
2013, pp. 406-412.
Bluhm, Ludger Overbeck., Wagner, Christoph., An Introduction to Credit Risk Modeling, Christian Chapman & Hall/CRC Financial Mathematics Series, pages 15-121,
Hoogbruin, Peter-Paul., Journal of Global Association of Risk Professionals, September/October 2006 issue, pages 34-39.
Haigh, John., Probability Models, Springer Undergraduate Mathematical Series, Springer, pages 1-86
Barreto, Humberto., Howland, Frank M., Introductory Econometrics, Cambridge University Press, 2006, pages 215-235.
David Vose, Risk Analysis A Quantitative Guide, John Wiley & Sons Ltd., 2003, page 59
Berenson, Mark L., Levine, David M., Basic Business Statistics, Prentice-Hall International inc., Seventh Edition 1999, pages 291-330
Winston, Wayne; Financial Models Using Simulation and Optimization II. Palisade Corporation NY. 2001, pages 9-20
Addison-Wesley, Visual Basic an Object Oriented Approach, Pearson Education Ltd., 2001, pages 1-202
Enrique Navarrete, Practical Calculation of Expected and Unexpected Losses on Operational Risk by Simulation Methods.
Michael Kalkbrener (Deutsche Bank‘s Economic Capital Model LRC - Risk Analytics & Instruments, COMISEF Tutorial on Quantitative Finance, London, 18 October 2007.
Martin, Hansen., Dr. Gary, van Vuuren., Mariarosa, Verde., Basel II Correlation Values., An Empirical Analysis of EL, UL and the IRB Model, Credit Market Research Financial Institutions Special Report, Fitch Rating 2008, Page 3.
Bank for International Settlements, The New Basel Capital Accord, Consultative Document Basel Committee on Banking Supervision May 2001, Page 84.