Bank tests joint credit and interest rate risk model
A research paper published by the Bank of England on Tuesday develops a framework where credit and interest rate risks are analysed jointly, and finds that a combined analysis creates different results.
The authors, Piergiorgio Alessandri and Mathias Drehmann, say that banks often measure credit and interest rate risk separately and then add the two measures to determine their overall economic capital. This approach misses complex interactions between the two risks.
The authors formulate an
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