Credit tails

Models have taken a lot of flak in the past few months, with dealers and investors alike racking up millions of dollars in losses after the second major dislocation in the credit markets in two years. Jon Gregory considers some of the problems with credit models


When times are good, investors take on more risk. When the cycle turns, they offload this risk. The ensuing flight to quality may cause a gradual market downturn or, more likely, lead to a collapse. This description could be applied in general to a financial crisis, but could also be used to describe the recent meltdown in the US subprime mortgage market.

The surge in US subprime delinquencies redefined the market perception of mortgage risk, and this quickly spread to other sectors of the

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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