Vasicek Model for Credit Risk Capital
1. Context
In this video for FRM Part I and FRM Part II, we explore the Vasicek Model for determining the credit risk capital for a portfolio of loans. This model appears in FRM Part I (Valuation and Risk Models, Measuring Credit Risk chapter) and FRM Part II (Credit Risk section and Operational Risk section). This model underpins the Internal Ratings Based (IRB) approaches prescribed by Basel II. This video is an addendum to the FRM Part 1 preparation course and FRM Part 2 preparation course. The details of the readings in which this topic appears are given below:
| Area | Valuation and Risk Models (FRM Part I), Credit Risk (FRM Part II) |
| Reading | Credit Risk and Capital Modeling, Portfolio Credit Risk |
| Reference | Chapter 6. Credit Risk and Capital Modeling In GARP Official Books, VRM Section (GARP, 2020). |
| Reference | Chapter 8. Portfolio Credit Risk In Financial Risk Management: Models, History, and Institutions, (Hoboken, NJ: John Wiley & Sons, 2011). |