rho_retail: the coefficient of correlation for retail exposures defined

In dangulod/ECTools: Economic Capital Tools

Description

According to the Capital Requirements Reglament (575/2013), Article 154. The coefficient of correlation for corporates, institutions and central governments and central banks shall be calculated according to the following formula:

R = 0.12 * ((1 - exp(-50 * PD)) / (1 - exp(-50))) + 0.24 * (1 - ((1 - exp(-50 * PD)) / (1 - exp(-50))))

For all exposures to large financial sector entities, the co-efficient of correlation of is multiplied by 1.25. For all exposures to unregulated financial entities, the coefficients of correlation are multiplied by 1.25.

According to the Capital Requirements Reglament (575/2013), Article 154. The coefficient of correlation is defined as:

R = 0.03 * ((1 - exp(-35 * PD)) / (1 - exp(-35))) + 0.16 * (1 - ((1 - exp(-35 * PD)) / (1 - exp(-35))))

However,

For retail exposures secured by immovable property collateral a coefficient of correlation R of 0,15 shall replace the figure produced by the correlation formula above.

For qualifying revolving retail exposures, a coefficient of correlation R of 0.04 shall replace the figure produced by the correlation formula above.

Usage

rho_retail(segment, PD)

Arguments

segment	segment
PD	Probability of default

Value

the coefficient of correlation for retail exposures defined

References

CRR 575/2013/EU, Article 153 "Risk weighted exposure amounts for exposures to corporates, institutions and central governments and central banks" CRR 575/2013/EU, Article 154 "Risk weighted exposure amounts for retail exposures"

An Explanatory Note on the Basel II IRB Risk Weight Functions (page 14) http://www.bis.org/bcbs/irbriskweight.pdf

Examples

rho_retail("mortage", 0.14)
rho_retail("credit cards", 0.14)
rho_retail("loans", 0.14)

dangulod/ECTools documentation built on May 4, 2019, 3:19 p.m.