The credit risk in the context of Basel II and determination of credit risk by calculation of probability of default

In the year 2004, with Basel II Capital Accord, the uniform method which was used by all the banks for the measurement of the capital adequacy with in the context of Basel I, was abandoned. The credit risk measurement method revised and operational risk measurement was included in the capital adequacy calculation, thus a more risk sensitive structure came forward. In the thesis, the credit risk study is realized in the context of Basel II. The credit risk is the most common risk type that banking sector is exposed to. In recent years, many important progress has been made in the field of measurement methods of credit risk. The sensitivity of the methods used for measurement of credit risk is increasing day by day. In this thesis, by using KMV Merton model which is one of the advanced credit risk measurement method, the probability of default is measured, after that, the firm ratings are determined in the context of the probability of defaults and in relation with the determined level of risk, the capital that banks has to allocate is calculated in the context of Basel I and Basel II.