Category: Basel II / III

Calculating IRB formula for capital requirements in Basel II – The HangZhou Constant

By: Fred Vacelet, Eureka Financial Faculty The Basel II text, in its IRB (Internal Rating Based) formula for capital requirements, ignores a few unpleasant properties of the calculations when PDs are low: capital requirements negative, division by 0, non-monotonicity, to name but a few. Above a PD of 0.03% (the minimum for non-public entities), we […]