Basel2 IRBCreditRiskFunction

Basel II: Internal ratings-based (IRB) risk weight function

Inputs into the IRB

PD

1.0%

M

2.5

R

12%

LGD

60%

K (IRB)

6.07%

Solve for N(G[PD]):

weight_1

1.066

G(PD)

-2.326

weighted G(PD)

-2.480

weight_2

0.369

G(99.9%)

3.090

weighted G(99.9%)

1.141

G(PD)

-1.339

N(G[PD])

9.03%

Maturity Adjustment

1.2598

b(PD) as input into Maturity Adjustment

Intercept

0.11852

Slope

0.05478

b(PD)

0.13749