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6.2 C-VaR and F-IRB Capital Requirements

Course week(s) Week 6
Course subject(s) Default Probabilities III

In this lecture we try to answer the following question:

Once we have the PD of a counterparty, how can we quantify the capital requirements for credit risk, with respect to that counterparty?

To answer this question we will come back to the F-IRB framework. Hence, if you do not remember what a risk-weight function is, or you have doubts about EAD and LGD, it is time to review the topics of lecture 2.
Similarly, a quick look at lecture 3 can be useful, since we will also speak about C-VaR.

Under the F-IRB approach, once we have the PD, we can compute RWA and capital requirements by plugging the PD into some specific formulas, the so-called risk-weight functions.
In the F-IRB approach, all quantities and formulas are provided by the regulator. The only degree of freedom is represented by the computation of the probability of default.

C-VaR and F-IRB Capital Requirements

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Subtitles (captions) in other languages than provided can be viewed at YouTube. Select your language in the CC-button of YouTube.

Here the script and here the slides.

Creative Commons License
Introduction to Credit Risk Management by TU Delft OpenCourseWare is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Based on a work at https://ocw.tudelft.nl/courses/introduction-credit-risk-management/.
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