Basel-2 capital adequacy: Computing the ‘fair’ capital charge for loan commitment ‘true’ credit risk
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت) International Review of Financial Analysis, Volume 16, Issue 1, 2007, Pages 1–21
قرار دادن گزینه های جاسازی شده در تعهدات وام گیرنده قابل توسعه؛ هزینه سرمایه 'عادلانه' برای تعهد ریسک اعتباری 'درست'
This research makes two contributions: (i) to price analytically put option and extension premium embedded in a borrower-extendible commitment, and (ii) to compute the ‘fair’ capital charge that corresponds to the commitment ‘true’ credit risk. In doing so, the procedure replaces the BIS accounting-based concepts of credit-conversion factor, principal-risk factor, and initial term to maturity of irrevocable commitments with the market-based concepts of exercise-cum-takedown proportion and put value implicit in the borrower-extendible commitment, respectively. Finally, the approach is developed one step further to account for the borrowers' risk ratings by public credit agencies; this results in a two-dimensional (time-state of nature) risk-weighting system that applies to all commitment types.