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Calculation on rho in BASEL (Hull reading)

David Harper CFA FRM

David Harper CFA FRM
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#2
Hi @NNath
  • For Corporate, sovereign and bank exposures, the rho is given by ρ = 0.12*[1+ e^(-50*PD)]
  • For Retail Exposures (other than residential mortgages, ρ = 0.15, and revolving exposures, ρ = 0.04), rho is given by 0.03 + 0.13*exp(-35*PD). In this case (retail loans that are not mortgages), ρ = 0.03 + 0.13*exp(-35*0.01) = 0.121609. It looks like we didn't include this variation in the summary notes (but I imagine realize this level of detail will not be tested, but assume you are seeking additional mastery.) I hope this helps!
 
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