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May 30, 2010 An Exposure at Default Model for Contingent Credit Lines Pinaki Bag Union National Bank, United Arab Emirates Michael Jacobs, Jr. Credit Risk Analysis Division U.S. Office of the Comptroller of the Currency The views expressed herein are those of the authors and do not necessarily represent the views of either Union National Bank, UAE or of the U.S. Office of the Comptroller of the Currency.
EAD Modeling ,[object Object],[object Object]
Outline 1 Introduction - Motivation 2 Review of the Literature 3 The Model 4 Numerical Experiment 5 Conclusions
Introduction -Motivation ,[object Object],[object Object]
Why Modeling EAD? ,[object Object],[object Object],[object Object],Probability of  Default (PD) Loss Given  Default (LGD) Exposure at Default (EAD) Basel II - 101
Why Modeling EAD? ,[object Object],[object Object],[object Object],[object Object],[object Object],Challenges (FSA,2007)
What We Did? Portfolio Segments Segment Level Usage  Unused Obligor Limits Each CCL as Portfolio of Put Options Basic CreditRisk+ Algorithm  Fast Fourier Transform Moody's DRS Database (Current Sample Portfolio)   Moody's MURD Database & Compustat (Reference Data for CCF Estimates)
Review of the Literature ,[object Object],[object Object]
Review of the Literature ,[object Object],[object Object],[object Object]
Review of the Literature ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Review of the Literature ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Model ,[object Object]
Model Overview Segment  Level Usage Obligor Level  Unused  Limits Each obligor’s CCL is modeled as portfolio of large number  of put options to determine usage  Similar put size obligors are  clubbed under each sub-segment Each sub-segment having similar expected usage are combined to determine segment level usage FFT used to convolute each  segment to the overall portfolio  usage distribution Individual obligors Sub-segment  Segment   Portfolio
Obligor Level Partial Draw-downs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Individual obligors
Sub-Segment Level Partial Draw-downs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Individual obligors Sub-segment
[object Object],[object Object],[object Object],[object Object],Sub-Segment Level Partial Draw-downs Individual obligors Sub-segment
[object Object],[object Object],Segment Level Partial Draw-downs ,[object Object],[object Object],[object Object],Individual obligors Sub-segment  Segment
[object Object],[object Object],Portfolio Level Partial Draw-downs ,[object Object],[object Object],Individual obligors Sub-segment  Segment   Portfolio
Portfolio Segmentation ,[object Object],[object Object],[object Object],[object Object]
Numerical Experiment ,[object Object],[object Object]
Numerical Experiment with Moody's Data ,[object Object],[object Object],[object Object],[object Object]
Numerical Experiment with Moody's Data ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Numerical Experiment with Moody's Data
Numerical Experiment with Moody's Data: Results ,[object Object],[object Object]
Numerical Experiment with Hypothetical Portfolio: Sensitivity Analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Conclusions ,[object Object],[object Object]
Conclusions and Directions for Future Research ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Conclusions and Directions for Future Research (continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Bag Jacobs Ead Model Ccl Irmc 6 10

  • 1. May 30, 2010 An Exposure at Default Model for Contingent Credit Lines Pinaki Bag Union National Bank, United Arab Emirates Michael Jacobs, Jr. Credit Risk Analysis Division U.S. Office of the Comptroller of the Currency The views expressed herein are those of the authors and do not necessarily represent the views of either Union National Bank, UAE or of the U.S. Office of the Comptroller of the Currency.
  • 2.
  • 3. Outline 1 Introduction - Motivation 2 Review of the Literature 3 The Model 4 Numerical Experiment 5 Conclusions
  • 4.
  • 5.
  • 6.
  • 7. What We Did? Portfolio Segments Segment Level Usage Unused Obligor Limits Each CCL as Portfolio of Put Options Basic CreditRisk+ Algorithm Fast Fourier Transform Moody's DRS Database (Current Sample Portfolio) Moody's MURD Database & Compustat (Reference Data for CCF Estimates)
  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 13. Model Overview Segment Level Usage Obligor Level Unused Limits Each obligor’s CCL is modeled as portfolio of large number of put options to determine usage Similar put size obligors are clubbed under each sub-segment Each sub-segment having similar expected usage are combined to determine segment level usage FFT used to convolute each segment to the overall portfolio usage distribution Individual obligors Sub-segment Segment Portfolio
  • 14.
  • 15.
  • 16.
  • 17.
  • 18.
  • 19.
  • 20.
  • 21.
  • 22.
  • 24.
  • 25.
  • 26.
  • 27.
  • 28.