Credit Value Risk: How to complete the jigsaw

The new regulatory Capital Adequacy Framework does not include Credit Value at Risk (CVaR), nevertheless, more and more banks are implementing credit portfolio models. The market is changing and risk adjusted pricing puts pressure on banks that are not able to accurately calculate the required risk spreads for banking book products. Stefan Staub looks at how the different parts of credit risk fit together.

Economic capital is based on CVaR
Economic capital is typically derived from a Credit Portfolio Model and its main output called CVaR. Above all, CVaR is able to measure diversification effects of a portfolio while risk metrics for each transaction need to be input. The measurement of diversification is also the key difference to the improved rules from Basel II. Economic capital serves as a crucial input factor for various essential concepts including risk adjusted pricing as well as risk

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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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