Abstract
When developing an internal rating system, besides its calibration, the validation of the respective rating categories and associated probabilities of default plays an important role. To have a valid risk estimate and allocate economic capital efficiently, a credit institution has to be sure of the adequacy of its risk measurement methods and of the estimates for the default probabilities. Additionally, the validation of rating grades is a regulatory requirement to become an internal ratings based approach bank (IRBA bank).
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Notes
- 1.
Under the settings of the normal approximation of the binomial test in Sect. 14.3.1.2 there is a more than 15%-chance, that the default rate exceeds the PD by more than a standard deviation.
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Blochwitz, S., Martin, M.R.W., Wehn, C.S. (2011). Statistical Approaches to PD Validation. In: Engelmann, B., Rauhmeier, R. (eds) The Basel II Risk Parameters. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-16114-8_14
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