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The Analytics of Risk Model Validation by Stephen Satchell, George A. Christodoulakis

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5

Measuring concentration risk in credit portfolios

Klaus Duellmann** Deutsche Bundesbank, Frankfurt, Germany. The views expressed here are my own and do not necessarily reflect those of the Deutsche Bundesbank.

Abstract

This paper addresses the need to measure the concentration risk in credit portfolios, which is not captured by banks’ minimum capital requirements in the internal rating-based approaches under Basel II. Concentration risk can arise from an unbalanced distribution of exposures to single borrowers (single name concentrations) or sectors (sectoral concentrations), the latter being more difficult to discern and address using quantitative models. Simple concentration indices, an extension of the single-factor model on which the regulatory ...

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