Single-name concentration risk measurements in credit portfolios

Raffaella Calabrese, Francesco Porro

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

For assessing the effect of undiversified idiosyncratic risk, Basel II has established that banks should measure and control their credit concentration risk. Concentration risk in credit portfolios comes into being through an uneven distribution of bank loans to individual borrowers (single-name concentration) or through an unbalanced allocation of loans in productive sectors and geographical regions (sectoral concentration). In this paper six properties that ensure a coherent measure of single-name concentration are identified. To evaluate single-name concentration risk in the literature, Herfindahl-Hirschman index has been used. This index represents a particular case of Hannah-Kay index proposed in monopoly theory. In this work the proof that Hannah-Kay index satisfies all the six properties is given. Finally, the impact of the elasticity parameter in Hannah-Kay index on the single-name concentration measure is analysed by numerical applications.

Original languageEnglish
Title of host publicationMathematical and Statistical Methods for Actuarial Sciences and Finance
EditorsMarco Corazza, Claudio Pizzi
PublisherSpringer International Publishing AG
Pages89-98
Number of pages10
ISBN (Print)9783319024981
DOIs
Publication statusPublished - 4 Nov 2013
Event5th International MAF Conference 2012 - Mathematical and Statistical Methods for Actuarial Sciences and Finance, MAF 2012 - Venice, Italy
Duration: 10 Apr 201212 Apr 2012

Conference

Conference5th International MAF Conference 2012 - Mathematical and Statistical Methods for Actuarial Sciences and Finance, MAF 2012
CountryItaly
CityVenice
Period10/04/1212/04/12

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