CEU Electronic Theses and Dissertations, 2020
| Author | Baracsi, Nilsz |
|---|---|
| Title | Modeling of the Credit Spread Risk in the Banking Book |
| Summary | Changes observed in fixed income securities can be primarily described by the fluctuations of the risk-free rate and the market credit spread component. The value reactions to spread movements are usually more pronounced than those observed concerning term structure fluctuations. However, the Basel III framework deals only with the effect of the interest rate risk in terms of valuation of the banking book. Thus, the effect of the widening credit spread has not yet been explored, and, moreover, it was ignored by the majority of Value-at-Risk models and asset-liability management frameworks. The research analyzes the market credit spread risk in the banking book advised by the Basel Committee on Banking Supervision and the European Banking Authority as outlined in the Capital Requirements Directive (CRD 5) and Capital Requirements Regulation (CRR 2). The first part of our study deals with the phenomena and gives a general introduction to the credit spread risk in the banking book. It then assesses the two environments that have the most significant influence on spread movements, the Hungarian Government bond market and the interest rate swap market. The second part undertakes to establish a theoretical model for measuring the credit spread risk for various asset classes. It then goes on to demonstrate the methodology with one type of asset, Hungarian Government bonds, by defining the credit spread risk component and its fluctuations with a GARCH model, as well as demonstrate the extreme values captured by the Value-at-Risk methodology. |
| Supervisor | Tibor Turner |
| Department | Economics MSc |
| Full text | https://www.etd.ceu.edu/2020/baracsi_nilsz.pdf |
Visit the CEU Library.
© 2007-2021, Central European University