Help banks to satisfy the three pillars of Basel II.
Pillar I: Minimum capital requirement:-
Through comprehensive end to end risk management system; banks would be able to allocate the required minimum capital for each risk
Pillar II: Supervisory review process:-
Real time monitoring of clients credit position and banks financial position through “Risk Analysis Engine”
Pillar III: Market discipline requirements-
Improved transparency, sound financial system, effective risk management and mitigation process, and disclosure of bank’s financial stability to public, through “Risk Analysis Dashboard”
PD - Probability of Default - The likelihood of a borrower to become default over a performance window after the observation point.
EAD - Exposure at Default - The outstanding balance at the time when the borrower becomes default.
LGD - Loss Given Default - The loss proportion of an exposure, e.g. EAD, after a recovery window from the time of default.
PD estimates are 1 year forward-looking probabilities of default (Default – fails to repay borrowings)
EAD estimates are a long-run default weighted average EAD; and
LGD estimates reflect economic downturn conditions
http://www.manyppt.com/05/The-New-Basel-Capital-Accord-and-Questions-for-Practice-and.html
Value at Risk (VAR) is used to measure the market risk .
VAR summarizes the likely loss in value of a portfolio over a given time period with specified probability.
Historical simulation, Model building approach, Montey Carlo simulation – are some of the VAR techniques.
Pillar I: Minimum capital requirement:-
Through comprehensive end to end risk management system; banks would be able to allocate the required minimum capital for each risk
Pillar II: Supervisory review process:-
Real time monitoring of clients credit position and banks financial position through “Risk Analysis Engine”
Pillar III: Market discipline requirements-
Improved transparency, sound financial system, effective risk management and mitigation process, and disclosure of bank’s financial stability to public, through “Risk Analysis Dashboard”
PD - Probability of Default - The likelihood of a borrower to become default over a performance window after the observation point.
EAD - Exposure at Default - The outstanding balance at the time when the borrower becomes default.
LGD - Loss Given Default - The loss proportion of an exposure, e.g. EAD, after a recovery window from the time of default.
PD estimates are 1 year forward-looking probabilities of default (Default – fails to repay borrowings)
EAD estimates are a long-run default weighted average EAD; and
LGD estimates reflect economic downturn conditions
http://www.manyppt.com/05/The-New-Basel-Capital-Accord-and-Questions-for-Practice-and.html
Value at Risk (VAR) is used to measure the market risk .
VAR summarizes the likely loss in value of a portfolio over a given time period with specified probability.
Historical simulation, Model building approach, Montey Carlo simulation – are some of the VAR techniques.
