Concentration Risk and Basel Pillar ll: Add-Or or Portfolio Model? Some Proposals

Abstract:     
The Basel deadlines concerning the second pillar and the international crisis have emphasized the problem of a reliable measure of the credit concentration risk. Nevertheless, there is not yet a best practice and several approaches have been proposed. After a survey about the framework, the paper proposes a new analytical model, that embodies both the usual single name effect along with sector and contagion effects. We also discuss some implementation issues, related to the actual banks software procedures and data.

Keywords: Credit VaR, Concentration Risk, Basel II, Pillar II

JEL Classification: C63, G11, G38

Accepted Paper Series