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- Title
RATING TRANSITION AND VALUE AT RISK: ISLAMIC LOANS VS CONVENTIONAL LOANS.
- Authors
Ramasamy, Ravindran; Sinnasamy, Ganisen; Eaw Hooi Cheng
- Abstract
Rating migration analysis entails the actuarial estimation of transition probabilities for obligor credit risk ratings, with emphasis on estimation of empirical default probabilities. Measurement of changes in borrower credit quality over time is important as obligor risk ratings are a key component while assessing credit quality. In this article, by employing bootstrapping iterating methodology we estimate the loan values of Islamic loans and conventional loans that are downgraded using the forward yield rates and transitional probabilities. The credit risk of the two groups is compared under normal distribution assumption, and actual distribution. The results are compared with the estimated loan values as per BASEL II requirement. Interestingly, we found that the Islamic loans' credit risk was more stable than the credit risk of conventional loans.
- Publication
UNITAR e-Journal, 2009, Vol 5, Issue 2, p15
- ISSN
1511-7219
- Publication type
Academic Journal