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2011•Munich Personal RePEc Archive (Ludwig Maximilian University of Munich)Open access

Assessing bank's default probability using the ASRF model

Petar Radkov, Leda D. Minkova

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Abstract

In this paper it is shown how a Vasicek-model approach and the assumptions in Basel 2 regulatory framework can be used to develop measures of the probability of banks' failure. The Basel 2 framework is based on a Vasicek-model approach. The estimation of the propose measure of bank probability of default could be made over the capital ratio from supervisory authorities (non-public information) or over the capital ratio from balance sheet data (public available information).

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What this paper is about

In this paper it is shown how a Vasicek-model approach and the assumptions in Basel 2 regulatory framework can be used to develop measures of the probability of banks' failure. The Basel 2 framework is based on a Vasicek-model approach. The estimation of the propose measure of bank probability of default could be made over the capital ratio from supervisory authorities (non-public information) or over the capital ratio from balance sheet data (public available information).

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Available abstract

In this paper it is shown how a Vasicek-model approach and the assumptions in Basel 2 regulatory framework can be used to develop measures of the probability of banks' failure. The Basel 2 framework is based on a Vasicek-model approach. The estimation of the propose measure of bank probability of default could be made over the capital ratio from supervisory authorities (non-public information) or over the capital ratio from balance sheet data (public available information).

Key concepts: Vasicek model, Probability of default, Basel II, Capital requirement, Basel III, Balance sheet, Risk-weighted asset, Econometrics

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