Under the new Basel III banking regulation banks should include wrong-way risk (WWR) into the calculation of the credit valuation adjustment (CVA) of the OTC derivatives. WWR takes place when the exposure to a counterparty is adversely correlated with the credit quality of that counterparty....

The credit valuation adjustment (CVA) of OTC derivatives is an important part of the Basel III credit risk capital requirements and current accounting rules. Its calculation is not an easy task - not only it is necessary to model the future value of the derivative, but also the probability of...

In this contribution we study calibration methods of interest rate models. First, we assume that model parameters are constant and can be estimated by the maximum likelihood estimation or yield curve fitting methods. Next, we suppose that model parameters are random variables with their prior...

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The paper analyzes a two-factor credit risk model allowing to capture default and recovery rate variation, their mutual correlation, and dependence on various explanatory variables. At the same time, it allows computing analytically the unexpected credit loss. We propose and empirically...

<span lang="EN-US"><span style="font-size: small; font-family: Times New Roman;">A retail bank consumer loan dataset is used to develop logistic regression based scoring functions with different definitions of default from a very broad to a narrow or hard. The performance of the scoring functions is compared with respect to the hard definition of default which indicates real...</span></span>

<em style="mso-bidi-font-style: normal;"><span lang="EN-US"><span style="font-family: Times New Roman; font-size: small;">The paper proposes a two systematic factor model to capture a retail portfolio probability of default (PD) and loss given default (LGD) parameters, in particular their mutual correlation. We argue that the standard one factor models standing behind the Basel II formula and used by a number of...</span></span></em>

We investigate valuation of volatility sensitive interest rate derivatives like the derivatives involving LIBOR or swap rates in arrears. The paper studies several alternatives of the standard convexity adjustment formula, in particular, a precise analytical formula based on an assumption of...

The paper argues that it would be natural to replace the standard normal distribution function by the logistic function in the regulatory Basel II (Vasicek’s) formula. Such a model would be in fact consistent with the standard logistic regression PD modeling approach. An empirical study based...

Interest rate risk measurement and management of non-maturity deposit balances presents a challenge for practitioners and academic researchers as well. The paper provides a review of several methodological approaches focusing on the area of savings accounts rate sensitivity modeling and...