This study develops a stress-testing framework to assess liquidity risk of banks, where liquidity and default risks can stem from the crystallisation of market risk arising from a prolonged period of negative asset price shocks. In the framework, exogenous asset price shocks increase banks¡¯...

This paper studies the discriminatory power and calibration quality of the structural credit risk models under the ¡§exogenous default boundary¡¨ approach including those proposed by Longstaff and Schwartz (1995) and Collin-Dufresne and Goldstein (2001), and ¡§endogenous default...

This study develops a stress-testing framework to assess liquidity risk of banks, where liquidity and default risks can stem from the crystallisation of market risk arising from a prolonged period of negative asset price shocks. In the framework, exogenous asset price shocks increase banks'...

This paper studies the discriminatory power and calibration quality of the structural credit risk models under the 'exogenous default boundary' approach including those proposed by Longstaff and Schwartz (1995) and Collin-Dufresne and Goldstein (2001), and 'endogenous default boundary' approach...

The global financial crisis has reminded us that effective stress tests should not only be probabilistic, but also consider risk interdependence. In this paper, we combine two hypothetical shocks, of varying degrees, with more than fifteen years of fortnightly data on deposits, borrowings and...

In this article, we present a non-model framework for calculating exposure at default for counterparty credit risk analytically. While the proposed framework is based on the same fundamental assumption (that future transaction market values are normally distributed) as is used in the...

This paper presents a benchmarking model for validation of default probabilities of listed companies for Basel II purposes. The model is based on the recent studies on the predictive capability of structural credit risk models. Benchmark ratings and one-year default probabilities are assigned to...

This paper develops a simple model to study the credit risk premiums of credit-linked notes using the structural model. Closed-form solutions of credit risk premiums of the credit-linked notes derived from the model as functions of firm values and the short-term interest rate, with...

This paper develops a simple model based on an options approach to measure provisions covering expected losses of collateralised retail lending due to default. The measurement of provisions against expected losses of retail lending secured by collateral is important for improving the capital...

The most common approach for default dependence modelling is at present copula functions. Within this framework, the paper examines factor copulas, which are the industry standard, together with their latest development, namely the incorporation of sudden jumps to default instead of a pure...