2012 Volume 22 Issue 3 Pages 139-153
Japan is now in an active phase of earthquakes from the first half of this century and on March 11th, 2011, we were visited by the unexpected earthquake of “Great East Japan Earthquake”. Hence it seems that it is important to build up the risk management system for massive earthquakes such as the Earthquake Directly under the Capital as soon as possible. A massive earthquake not only has severe repercussions on corporate activities, but also worsens the credit quality of the correspondent financial institution’s investment and loan portfolio, and may cause the institution to default. And it may finally result in malfunction of the whole financial system. As a massive earthquake occurrence brings various financial risk concentrations, financial institutions must conduct the voluntary internal risk management. We incorporate the valuation methodology for the long term earthquake occurrence probability into the portfolio credit risk valuation framework and provide a quite new valuation methodology for the portfolio credit risk triggered by a massive earthquake.
