A Note on the Vasicek’s Model with the Logistic Distribution
15 Pages Posted: 20 Aug 2012
Date Written: August 20, 2012
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: Suggested Citation