A Note on the Vasicek’s Model with the Logistic Distribution

15 Pages Posted: 20 Aug 2012

See all articles by Jiri Witzany

Jiri Witzany

University of Economics in Prague

Date Written: August 20, 2012

Abstract

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 on US commercial bank’s loan historical delinquency rates re-estimates the default correlations and unexpected losses for the normal and logistic distribution models. The results indicate that the capital requirements could be up to 90-100% higher if the normal Vasicek’s model was replaced by the logistic one.

Keywords: credit risk, Basel II regulation, default rates

JEL Classification: G20, G28, C51

Suggested Citation

Witzany, Jiri, A Note on the Vasicek’s Model with the Logistic Distribution (August 20, 2012). Available at SSRN: https://ssrn.com/abstract=2132583 or http://dx.doi.org/10.2139/ssrn.2132583

Jiri Witzany (Contact Author)

University of Economics in Prague ( email )

Winston Churchilla Sq. 4
Prague 3, 130 67
Czech Republic

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