Exposure at Default Modeling with Default Intensities
29 Pages Posted: 1 Sep 2014 Last revised: 11 Dec 2014
Date Written: November 30, 2011
The paper provides an overview of the Exposure at Default (EAD) definition, requirements, and estimation methods as set by the Basel II regulation. A new methodology connected to the intensity of default modeling is proposed. The numerical examples show that various estimation techniques may lead to quite different results with intensity of default based model being recommended as the most faithful with respect to a precise probabilistic definition of the EAD parameter.
Keywords: Credit risk; Exposure at default; Default intensity; Regulatory capital
JEL Classification: G21, G28, C14
Suggested Citation: Suggested Citation