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  1. Paper Number KCB-WP-2008-013
    Title Long Run Probability of Default and BASEL II Capital Allocation
    Author by Jaesun Noh
    Abstract Basel II regulatory capital formula could imply substantial gaps between the long run PD and the short run historical average. Hence, banks might need to raise their short run historical average of internal PD substantially. Under through-the-cycle rating system, they might have to increase it even more when the economy is in booming period. With more realistic assumption of credit migration, however, we find that gaps are much smaller in many cases. We show, through simulation and a credit card portfolio, that adjustment in the short run PD can generate substantial variation in BASEL II regulatory capital. ¡ßKeywords: BASEL II, probability of default, regulatory capital, pooling, business cycle, rating system
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Contact : ±èÇà¶õ  (hrkim@business.kaist.ac.kr)
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