Estimating credit contagion in a standard factor model

Among the most important positions on the asset side of a financial institution's balance sheet are credit-risky securities, and a major task for risk managers and analytics is the appropriate modelling and forecasting of the inherent credit risk. Typically, banks and other institutions apply credit risk models for this purpose, either purchased from a vendor such as CreditMetrics or CreditRisk+ or internally developed (see, for example, Finger, 1998, Credit Suisse First Boston, 1997, or Bluhm

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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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