Probability of default (PD)
Stage fright: lenders still struggling with IFRS 9 transitions
Divergence in how banks move loans between stages of impairment prompts regulators to push for more homogenous approach
Understanding and predicting systemic corporate distress: a machine-learning approach
The authors construct a machine-learning-based early-warning system to predict, one year in advance, risks of systemic distress and demonstrate factors which can predict corporate distress.
Pricing default risk in stochastic time
This paper explores credit derivative pricing through the structural modeling framework and seeks to improve on how accurately such models value derivative securities.
Norinchukin’s credit RWAs up 31% on early Basel III opt-in
Bank’s standardised charges surge 19-fold following overhaul of models’ scope and parameters
Calibration alternatives to logistic regression and their potential for transferring the statistical dispersion of discriminatory power into uncertainties in probabilities of default
This paper compares four calibration approaches to linear logistic regression in credit risk estimation and proposes two new single-parameter families of differentiable functions as candidates for this regression.
US credit risk modellers prepare for life after IRB
Stress tests and economic capital calculations may not carry the same weight as Basel ratio
Lifetime achievement award: Stephen Kealhofer
Risk Awards 2023: KMV co-founder helped usher in a new era of credit risk analysis – at banks and investors
Sovereign probabilities of default in the euro area
This paper decomposes credit default swap spreads of euro area members into their risk premium and default risk elements and forecast one year probabilities of default.
Quantification of model risk with an application to probability of default estimation and stress testing for a large corporate portfolio
This paper discusses the building of obligor-level rather than segment-level hazard rate corporate probability of default models for stress testing.
EU eyes fix to FRTB’s capital asymmetry for govvies
Banks say French presidency proposal would see PD floor slashed for sovereign bonds under IMA
Nationwide’s IRB charges up 89% on PRA’s parameter curbs
The building society’s strict focus on mortgages meant impact was all-sweeping
Project finance risk methodologies
Federico Tacchetto, senior manager at Prometeia, describes how to calculate risk parameters for project finance exposures. Based on a simulation approach of the cashflows, it is assessed whether the generated net revenue will be sufficient to repay the…
How to model potential exposure, post-Archegos
BofA quant’s model considers the correlation between market shocks and counterparty defaults
Modeling credit risk in the presence of central bank and government intervention
In this paper a simple approach for including central bank and government intervention in credit models is developed and illustrated using the Fed’s data for the CCAR 2021 stress test.
Model clampdown costs NatWest 157bp of CET1 ratio
Measures to remedy internal model deficiencies added £14.8 billion RWAs overnight
The loss optimization of loan recovery decision times using forecast cashflows
In this paper, a theoretical method is empirically illustrated in finding the best time to forsake a loan such that the overall credit loss is minimized.
A structural credit risk model based on purchase order information
This paper proposes a credit risk model based on purchase order information to address the deficiencies of monitoring methods that use only financial statements.
Bank-sourced transition matrixes: are banks’ internal credit risk estimates Markovian?
This study explores banks’ internal credit risk estimates and the associated banksourced transition matrixes.
Calibration of rating grades to point-in-time and through-the-cycle levels of probability of default
The paper argues for the need for and importance of the dual calibration of a probability of default (PD) model (ie, calibration to both point-in-time and through-the-cycle PD levels.)
Backtesting of a probability of default model in the point-in-time–through-the-cycle context
This paper presents a backtesting framework for a probability of default model, assuming that the latter is calibrated to both point-in-time and through-the-cycle levels.
Climate risk: the writing is on the wall
For the EU financial sector, climate risk is inescapable, but it could be tamed