Credit Risk Modelling- A wheel of Risk Management

Gupta Shilpi

Abstract


Banking institutions encounter two broad types of risks in their everyday business – credit risk and market risk. Credit risk may be defined as the risk that borrowers might default on their obligations, whereas market risk reflects the variability in the value of their financial position due to changes in interest rates, exchange rates, etc. Over the last decade, rapid strides have been made in developing Value at Risk (VaR) models for managing market risks in a portfolio context. Such models have also been recognized for regulatory capital setting for market risks. However, a similar approach to measure credit risk in a portfolio context was found difficult on account of certain crucial differences between credit risk and market risk.

Keywords


Credit risk, Risk Management, Credit Risk Models, Probability Density Function, Portfolio

Full Text:

PDF

References


Jose A. Lopez, Marc R. Saidenberg (1999) “Evaluating Credit Risk Models”, Economic Research Department Federal Reserve Bank of San Francisco

Munich and Frankfurt, Christian Bluhm, Ludger Overbeck, Christoph Wagner (2002), “An Introduction to credit Risk Modeling”, Chapman & Hall/CRC press USA

Michel Crouhy a,*, Dan Galai b, Robert Mark (2000) “A comparative analysis of current credit risk models” Journal of Banking & Finance 59-117

Carty, L.V., Lieberman, D. (1996). “Defaulted bank loan recoveries Global Credit Research”, Special report. Moody’s Investors Service.

Chen, N., Roll, R., Ross, S. (1986). “Economic forces and the stock market” Journal of Business 59, 368-403.

Credit Metrics, (1997). Technical Document. JP Morgan.

Credit Suisse, (1997). “Credit Risk+: A Credit Risk Management Framework”. Credit Suisse Financial Products

Lucas, D.J. (1995). Default correlation and credit analysis. Journal of Fixed Income, 76-87

Altman, E.I. and Saunders, A. (1997). “Credit Risk Measurement: Developments over the Last Twenty Years,” Journal of Banking and Finance, 21, 1721-1742.

Basle Committee on Banking Supervision, (1999). “Credit Risk Modelling: Current Practices and Applications,” Basle Committee on Banking Supervision, Basle. (http://www.bis.org/press/index.htm)

Berkowitz, J. (1999). “Evaluating the Forecasts of Risk Models,” Manuscript, Trading Risk Analysis Group, Federal Reserve Board of Governors.

Carey, M., (1998). “Credit Risk in Private Debt Portfolios,” Journal of Finance, 53, 1363-1388.

Diebold, F.X., Gunther, T.A. and Tay, A.S., (1997). “Evaluating Density Forecasts with Applications to Financial Risk Management,” International Economic Review, 39, 863-883.

Federal Reserve System Task Force on Internal Credit Risk Models, (1998). “Credit Risk Models at Major U.S. Banking Institutions: Current State of the Art and Implications for Assessments of Capital Adequacy.” Manuscript, Board of Governors of the Federal Reserve System. (http://www.federalreserve.gov:80/boarddocs/press/General/1998/ 19980529/study.pdf)

Nickell, P., Perraudin, W., and Varotto, S., (1998). “Ratings- Versus Equity-Based Credit Risk Modelling: An Empirical Analysis.” Manuscript, Conference on Credit Risk Modelling and Regulatory Implications.

Treacy W.F. and Carey, M. (1998). “Credit Risk Rating at Large U.S. Banks,” Federal Reserve Bulletin, 897-921.




Bookmark and Share


Copyright (c) 2014 Gupta Shilpi

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

 

All published Articles are Open Access at  https://journals.pen2print.org/index.php/ijr/ 


Paper submission: ijr@pen2print.org