Question: The Basel II risk weight function for the internal ratings-based (IRB) approach is based on the asymptotic single risk factor (ASRF) model, under which the

The Basel II risk weight function for the internal ratings-based (IRB) approach is based on the asymptotic single risk factor (ASRF) model, under which the the system-wide risks that affect all obligors are modeled with only one systematic risk factor. The major reason for using the ASRF is:

a. The model should not depend on the granularity of the portfolio.

b. The model should be portfolio invariant so that the capital required for any given loan depends only on the risk of that loan and does not depend on the portfolio it is added to.

c. The model should not be portfolio invariant and the capital required for any given loan should not depend on the risk of other loans.

d. The model corresponds to the one-year VAR at a 99.9% confidence level.

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