Zazzara, Cristiano, "Credit Risk in the Traditional Banking Book: A VaR approach under correlated default", Economia società e istituzioni, Vol. 12, No. 3, (November 2000), pp. 331-361.

Abstract: This paper describes a default mode approach for measuring the economic capital of banks' loans portfolios and could form the basis also for more risk-sensitive regulatory capital standards for credit risk. Due to the particular source of data utilized to feed the model, average default correlations for banks within and between industry sectors are easily derived and, therefore, portfolio effects under correlated defaults are taken into account. Examples of the implementation of this framework are presented for the Italian case, using the recently released data on corporate default rates by the Bank of Italy. However, one should proceed with extreme caution before implementing this framework with confidence.

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