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Credit Concentration Risk: Extended multi-factor adjustment IRB model

by Yun-Hoan Oh of F1 Consulting, Korea

July 19, 2007

Abstract: Credit concentration risk models were studied from 2000. Those studies were measured obligor (debtor) concentration (Name Concentration), Sector Concentration, Contagion Concentration models separately. Through integration of those models, we suggest consolidated one Extended Multi-Factor Adjustment model to calculate Name Concentration, Sector Concentration, and Contagion Concentration. This model has Closed Form Solution and recognizes fairly well in Name Concentration, Sector Concentration and Contagion Concentration.

Keywords: Credit Concentration Risk, Name Concentration, Sector Concentration, Contagion, Granularity Adjustment, Multi-Factor Adjustment, Extended Multi-Factor Adjustment.

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