In credit portfolio modeling the asset correlation parameter is used to describe the degree of default rates fluctuations. In this article we estimate the asset correlation parameter for banks and other industry sectors from default data. We find that estimates of the asset correlation vary...

The Basel Accord assumes an inverse relationship between the probability of default and the asset correlation parameter, with the latter being responsible for modeling the degree of cyclicality of default rates. Previous empirical studies that embedded the formula of the Basel Accord into a...

Financial institutions and rating agencies routinely monitor the discriminatory power of credit ratings so that potential weaknesses are detected early. This article presents an empirical study, that shows that the higher the level of default rates, the lower the expected discriminatory power of...