  As a consequence of the dependence experienced in loan portfolios, the
standard binomial test which is based on the assumption of independence does
not appear appropriate for validating probabilities of default (PDs). The model
underlying the new rules for minimum capital requirements (Basle II) is taken
as a point of departure for deriving two parametric test procedures that
incorporate dependence effects. The first one makes use of the so-called
granularity adjustment approach while the the second one is based on moment
matching.
