The Research On Loss Given Default And Its Application In China

The New Basel Capital Accord is a universal rule in banking risk management. Credit risk management is an emphases and difficulty in banking risk management. Therefore, IRB approaches (internal rating-based approaches) which were done for strengthening banking credit risk management are core contents of the New Basel Capital Accord. It were classified as foundation and advanced IRB approaches. In this article we emphasized on the research of advanced IRB approach. PD (probability of default) and LGD (loss given default) are two extreme important concepts in advanced IRB approach. Nevertheless, PD is easy to evaluate relative to LGD, and has mature research. But the research of LGD, especially in quantitative analysis, has more challenges. This article is challenge for the research, and do our endeavor to innovate in theories,methods and practices.The structure arrangement of this article is from macro to micro, and from theories to practices. Firstly, the dissertation reviews and sum up the major viewpoints of the literatures concerning the LGD from domestic and overseas. It focuses on the LGD investigative actuality in domestic and overseas. And then we expatiate on the LGD's intension and extension meanings, and it's effects on banking risk management. Besides, we emphasize on evaluating LGD from option model and statistic model, and use the data of bad assets of our state-owned banking to estimate the LGD of Chinese banking. Finally, we make clear that evaluating LGD is a very difficult job, but has significant meaning when it applying in our banking. Meanwhile, we put forward some politic proposals about how to applying LGD in credit risk management of Chinese banking.Of course, owing to unavailable the domestic banking business data, and empty of LGD relevant databank, so this article hasn't a persuasion demonstrate research on domestic banking LGD. This is the limitation of the article too.