Direct Calibration of Maturity Adjustment Formula from Average Cumulative Issuer-Weighted Corporate Default Rates
by Dmitry Petrov of Lomonosov Moscow State University, and
Abstract: Of late years there is considerable progress in the development of credit risk models. Revised Framework on International Convergence of Capital Measurement and Capital Standards (2004) raised the standards of risk management on the new high level. At the same time the problem of theoretical investigation of probability of default time structure (and consequently maturity dependence of capital requirement, expected loss, etc.) rests actual. Basel Committee recommends to perform maturity adjustment in capital requirement. By its sense this adjustment is a penalty for exceeding one year maturity. However the direct procedure of receiving of proposed maturity adjustment rests undisclosed.
Keywords: Maturity adjustment, Capital Requirement, Basel II, Probability of default, PD time structure.