As Covid snaps credit models, lenders turn to stress-testing

Banks enlist scenario analysis to bolster creaking default models

Credit risk models are buckling under the strain of coronavirus, and banks are scrambling to fix or replace them. The models, which help lenders compute parameters such as probability of default (PD) and loss given default (LGD), lose their predictive power when faced with the kind of unique economic circumstances that are buffeting markets and companies during the pandemic crisis.

In the absence of credible inputs for standard models, banks are getting creative. They’re repurposing methods

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Calibrating interest rate curves for a new era

Dmitry Pugachevsky, director of research at Quantifi, explores why building an accurate and robust interest rate curve has considerable implications for a broad range of financial operations – from setting benchmark rates to managing risk – and hinges on…

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