Optimal Simultaneous Validation Tests of Default Probabilities, Dependencies, and Credit Risk Models

11 Pages Posted: 18 Sep 2004

See all articles by Uwe Wehrspohn

Uwe Wehrspohn

Wehrspohn GmbH & Co. KG; University of Wuerzburg

Date Written: May 15, 2004

Abstract

We provide a general, model-independent approach to the construction of optimal simultaneous validation tests of credit default probabilities, dependencies between creditors, and credit risk models that maximize the power of test for any given portfolio-size and number of periods of data available. Results can be used to validate banks' estimates of rating default probabilities, correlations and choice of credit risk models in the Basel II supervisory review process. Example-analyses are given for the generalized asset value model.

Keywords: Rating validation, backtesting, model validation, banking regulation

JEL Classification: C5, C52

Suggested Citation

Wehrspohn, Uwe, Optimal Simultaneous Validation Tests of Default Probabilities, Dependencies, and Credit Risk Models (May 15, 2004). Available at SSRN: https://ssrn.com/abstract=591961 or http://dx.doi.org/10.2139/ssrn.591961

Uwe Wehrspohn (Contact Author)

Wehrspohn GmbH & Co. KG ( email )

Otterstadter Str. 50
Mannheim, 68219
Germany
062114626754 (Phone)

HOME PAGE: http://www.wehrspohn.de

University of Wuerzburg ( email )

Sanderring 2
Wuerzburg, Bavaria 97070
Germany
+49 (0)931 / 3184806 (Phone)
+49 (0)931 / 312 95 5 (Fax)

HOME PAGE: http://www.fzrm.uni-wuerzburg.de

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