The Research Of Calculating The Probability Of Default Under Business Cycle

In June 2004 the Basel Committee published the last proposal for the New Basel Capital Accord (NBCA). Its kernel is also the method of calculating the Capital Adequacy Ratio. They suggest banks use the Internal Rating Based approach (IRB). As we know, the Probability of Default (PD) is the most important in the approach's four risk factors, so our issue is to calculate PD. We believe that there is a cyclical effect on PD, so we define PD as the expected value of a default rate, whose distribution is a mixture of an expansion and a recession distribution.Chapter 1 gives an overview of the research about the cyclical effect on PD. According to these researches, most of them believe PD is different between expansion and recession significantly. And there is an existence of asymmetric, that is PD increases significantly during economic downturns, but does not decrease significantly during economic upturns.Chapter 2 describes our model ' s character and specific representation.During boom periods, banks intend to expand their lending activity, thereby contributing to a possible overheating of the economy; during recessions, even the most expansionary monetary policy may not encourage banks to lend to obligors that are perceived to be poor credit risks. These behavior result in procyclicality. In our model, we suggest that risk builds up...