Template-Type: ReDIF-Article 1.0
Author-Name: Alfiya F. Vasilyeva
Author-Email: alfiavaf@mail.ru
Author-Workplace-Name: HSE University, Moscow 101000, Russian Federation
Title: Approaches to Modelling Exposure at Default for the Entire Life of the Asset
Abstract: This paper is devoted to developing an optimal model for assessing the default requirement (EAD) of assets over the entire life of a financial instrument in accordance with the requirements of IFRS 9 “Financial instruments”. The EAD for the whole life of a financial instrument is a set of estimates of EAD values from the first to the last year during the life of the asset. Two models are used for evaluating EAD under agreements with a set limit (for example, a credit
line, overdraft) and under guarantees and letters of credit: the EAD model for balance sheet financial instruments (applied to the balance sheet part) and the credit conversion factor (CCF) model (applied to the off-balance sheet part). The approach to CCF modeling is described in the second part of the study. This model was developed based on a real bank portfolio of assets, using data which were collected at the beginning of the 2017. These days the topic of the paper is highly acute for both commercial banks that has experienced the problem of improving credit risk assessment models due to the requirements that have appeared to
them owing to the introduction of IFRS 9 since January 1, 2018, and regulatory authorities as well, etc.
Classification-JEL: B40, G21, F65
Keywords: IFRS 9, exposure at default, EAD, CCF, expected credit losses, credit risk assessment
Journal: Finansovyj žhurnal — Financial Journal
Pages: 91-109
Issue: 4
Year: 2021
Month: August
DOI: 10.31107/2075-1990-2021-4-91-109
File-URL: https://www.finjournal-nifi.ru/images/FILES/Journal/Archive/2021/4/statii/07_4_2021_v13.pdf
File-Format: Application/pdf 
Handle: RePEc:fru:finjrn:210407:p:91-109