Basle-2 revised standard approach and beyond

Credit risk valuation of short-term loan commitments

  • Jean-Pierre Chateau
Schlagworte: Gram-Charlier put option, duration-dependent commitment funding, option- versus accounting-based capital charge, and standard risk-weighting system, JEL: G13, G21


This research makes three contributions. The first one prices the credit risk of short-term bank commitments and determines their duration-dependent funding proportion. By combining these factors, the second one computes the 'fair' capital charge corresponding to the commitment 'true' credit risk; a charge that is then compared to the accounting-based ones computed with the Basel-1 and Basel-2 credit-conversion and principal-risk factors. The advantage of the fair-value procedure is that (i) the capital charges computed are quite moderate and internally consistent for all commitment types and (ii) the commitment put values impose some market discipline. The third one finally proposes a new two-dimensional risk-weighting system, which accounts for the borrower's rating ranges of public credit agencies.