Project description The Basel III regulations are introduced in the European Union via the Capital Requirements Directive (CRD IV) which came into force on 1 January 2014. In the UK, the rules and guidance of this directive plus the extra rules required are published by the Financial Conduct Authority (FCA), the UK regulator, in a new sourcebook, the Prudential Sourcebook for Investment Firms (IFRU). Chapters 4: Credit risk and Chapter 2 on stress testing are available at Blackboard, along with the Basel Accords and some relevant literature. You are encouraged to include additional references that you believe are relevant. These sections refer to certain aspects of credit risk and its regulation. For each of the following seven questions, use the sourcebook, any relevant literature, and your knowledge from the course to answer the questions. All referenced work must be properly cited within the work, and these bibliographic items do not count towards the 2000 word limit. The answers should be in your own words, include discussions and comparisons from the literature, the Basel Accords and the Sourcebook, and should be expressed in a way non-experts can understand. Marks will be deducted for just quoting verbatim from the Sourcebook. The seven questions are as follows (numbers in brackets refer to where in the Sourcebook they occur). As this is a 2000 word project, the answers should average at most 300 words and the answer to each question is worth 14% of the marks.1. Describe the two main rating systems philosophies. Which approach is used in the Basel Accord (4.6.1)?2. What is the variable scalar approach? What data is needed to make it work? (4.6.4)3. What are low default portfolios and how are they dealt with differently to other portfolios in the Basel Accord? (4.6.31) Why are they relevant to Credit Risk? When do they occur?4. What are EAD and CCF and how are they estimated and used in the Basel Accords? (4.8.1, 4.8.3, 4.8.13) Why are CCFs an important part of EAD modelling? To which financial products do they apply?5. How are PD models validated in the Basel Accords and how does the traffic light approach fit into validation? (4.11.16)6. What is stress testing and what are the different ways one can construct a stress test? (2.2.70, 2.2.72)7. What is the difference in the objectives between the stress tests required under Pillar II of the Accord and those required under capital planning? (2.2.64, 2.2.73)RequirementsThe word limit (not including the bibliography) is 2000 words.The project must be written individually.You must follow the University guidelines for citations and general rules of academic integrity. Attention, Please note that you are not supposed to upload any files with additional pages (extra instructions) until Administration informs you on the payment receipt. Please note that this order was placed by one of our valued Loyal Customers. Your work will be checked with the highest quality standard expectation. Make sure to dedicate maximum attention to this assignment.
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