Polish paper proposes new model for risk of ‘double default' on collateralised loans
Commonly used Gaussian copula-based approach said to be insufficient
A paper by two Polish economists suggests a new way of calculating the risk central banks take when they extend collateralised loans to commercial banks, arguing the Gaussian copula-based approach that most currently use is insufficient.
In Estimating the risk of joint defaults: an application to central bank collateralized lending operations, published by the National Bank of Poland, Dariusz Gatarek and Juliusz Jabłecki present "a simple model for correlated defaults", when the counterparty and
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