Calculation on rho in BASEL (Hull reading)

[NNath]

Hi @David Harper CFA FRM ,

In the calculation below for rho seem like the formula i rho ~ 0.12(1+exp(-50*PD)) is not being used. I am getting rho = 0.1927.

 

[David Harper CFA FRM]

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!