Confidence Crunch; Risk Magazine article

When I first started looking at economic capital, the convention was to calibrate the confidence level for the capital requirement to the probability of default associated with the target debt rating. This idea seemed pretty elegant on first examination and the same basic concept (excluding the target debt rating rationale) underpins the 99.9% confidence level employed in the formula for Internal Ratings Based risk weights adopted by the BCBS.

I wrote this article, published in Risk Magazine sometime in 2008 I think, where I set out the concerns I had with the idea.

“Confidence Crunch” published in Risk Magazine

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s