© 2006

The Basel II Risk Parameters

Estimation, Validation, and Stress Testing

  • Bernd Engelmann
  • Robert Rauhmeier

Table of contents

  1. Front Matter
    Pages i-xv
  2. Evelyn Hayden, Daniel Porath
    Pages 1-12
  3. Daniel Porath
    Pages 25-37
  4. Daniel Rösch, Harald Scheule
    Pages 105-125
  5. Alfred Hamerle, Michael Knapp, Nicole Wildenauer
    Pages 127-142
  6. Walter Gruber, Ronny Parchert
    Pages 177-196
  7. Stefan Blochwitz, Marcus R. W. Martin, Carsten S. Wehn
    Pages 289-306
  8. Volker Matthias Gundlach
    Pages 347-368
  9. Back Matter
    Pages 369-376

About this book


In the last decade the banking industry has experienced a significant development in the understanding of credit risk. Refined methods were proposed concerning the estimation of key risk parameters like default probabilities. Further, a large v- ume of literature on the pricing and measurement of credit risk in a portfolio c- text has evolved. This development was partly reflected by supervisors when they agreed on the new revised capital adequacy framework, Basel II. Under Basel II, the level of regulatory capital depends on the risk characteristics of each credit while a portfolio context is still neglected. The focus of this book is on the estimation and validation of the three key Basel II risk parameters, probability of default (PD), loss given default (LGD), and ex- sure at default (EAD). Since the new regulatory framework will become operative in January 2007 (at least in Europe), many banks are in the final stages of imp- mentation. Many questions have arisen during the implementation phase and are discussed by practitioners, supervisors, and academics. A ‘best practice’ approach has to be formed and will be refined in the future even beyond 2007. With this book we aim to contribute to this process. Although the book is inspired by the new capital framework, we hope that it is valuable in a broader context. The three risk parameters are central inputs to credit portfolio models or credit pricing al- rithms and their correct estimation is therefore essential for internal bank contr- ling and management.


Banking Basel II Basle II Credit Portfolio Models Default Probability Estimations Rating Systems Risk Management Risk Parameters Stress Testing Validation development modeling statistical method

Editors and affiliations

  • Bernd Engelmann
    • 1
  • Robert Rauhmeier
    • 2
  1. 1.Quanteam Dr. Bernd Engelmann und Sören Gerlach GbRFrankfurt
  2. 2.Risk Instruments — MethodsDresdner Bank AGFrankfurt

Bibliographic information

Industry Sectors
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Finance, Business & Banking
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From the reviews:

"This book compiles articles by various authors addressing estimation of three key risk parameters: probability of default (PD), loss given default (LGD), and exposure at default (EAD). … The authors identify their intended audience as risk managers and quantitative risk or ratings analysts working on credit risk and regulatory issues. These groups likely will find this book an accessible reference … . The exposition related to regulatory issues is quite good and worthwhile for all." (Keith Heyen, Journal of the American Statistical Association, Vol. 103 (483), September, 2008)