Credit rating transition probability Correlation coefficient •Between industries •Between customers Database Transaction data Collateral cover Customer data Rating assignment Monte Carlo simulation Generation of 10,000 scenarios covering the whole maturity Characteristics 1) Simulation of credit rating transition 2) Taking account of correlation Model for the Quantification of Credit Risk Measurement of expected loss/maximum loss 1) Expected loss: average of the 10,000 outcomes 2) Maximum loss: 99 percent confidence interval Credit risk delta Applied to the risk analysis for: • Bank as a whole • Each business area • Each branch • Each customer Allocated capital to cover risk Risk-adjusted return of equity (integrated ROE)
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