Integrated Market and Credit Risk Analysis
INTEGRATED MARKET & CREDIT RISK ANALYSIS IN BANKING SECTOR OF SLOVAKIA
By:Theodore M. Barnhill, Lubomira Gertler, Rudolf Sivak
This research project uses a portfolio simulation approach methodology (further only PSA) to simulate an integrated market and credit risk in banking sector of Slovakia. The model allows us to analyze the relationship between financial environment volatility and the potential losses faced by financial institutions operating in Slovakia, due to correlated market and credit risk. In the current study, we apply the model to a set of three hypothetical banks operating in Slovakia. The proposed simulation model explicitly links changes in the relevant variables, which according to us best characterize the financial environment in Slovakia, with the distribution of possible future capital ratios of the Slovak hypothetical banks.