# Herfindahl-Hirschman Index, HHI

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- Post ID: 594503
- Modified: 2023-07-25T21:02:11+00:00
- Language: en

## Definition

A widely and frequently used measure of concentration risk. For counterparty risk, the index is defined as the sum of the squares of the relative shares of a portfolio of all borrowers. - Well-diversified portfolios with very many, small borrowers show an HHI close to zero. Highly concentrated portfolios, on the other hand, show higher values; in the special case of only one borrower, the HHI has a value of one. - However, the HHI cannot reflect differences in the quality of individual loans, i.e. differences in the quality of collateral provided or in the probability of default. - Furthermore, inequalities in the dependencies of credit risks between sectors - such as: Stone and earth industry and construction industry - are not taken into account. - Nor does the HHI provide any information on the capital required to cover risks. - See Gini coefficient, granularity, delinquency rate, value-at-risk, arrears. - Cf. Deutsche Bundesbank Monthly Report June 2006, p. 41 (for a more detailed explanation of the HHI; critique). Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent! University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec. Professor Dr. Eckehard Krah, Dipl.rer.pol. E-mail address: info@ekrah.com https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk https://www.jung-stilling-gesellschaft.de/merk/ https://www.gerhardmerk.de/

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