As a unique implementation guide covering the entire spectrum of credit risk management, this book will assist you with your credit risk policy and help you to facilitate the establishment of risk processes and procedures. An excellent framework for analysis and implementation is provided and this information will be beneficial for a wide range of people from risk managers and compliance officers to credit risk administration personnel, front and middle office personnel, and students of GARP or financial engineering
Chapter 1. Introduction to Credit Risk Management
Challenge of credit risk management
What is credit risk?
Importance of credit risk measurement
Analysing credit loss
Analysing credit event
Components of credit risk
Measurement framework
Types of credit risk
Developments on the regulatory side (BIS framework)
SECTION I - RISK MEASURES
Chapter 2. Measuring Default
Defining default
Measuring PD
Estimating ex-ante PD
Transition Matrix
Whether rating really measures PD
Uses of PD
Chapter 3. Credit Scoring
Introduction
Issues in credit scoring
Uses of credit scoring
Credit scoring techniques
Discriminant analysis
Logit model
Neural networks
Search for the best method
Case studies
Chapter 4. PD Models
Building blocks for market information based models
Structural models
Reduced form models
Chapter 5. Credit Rating
Business risk assesment methodology
Assessing financial strength
Sovereign credit rating
Credit structures
A generic rating process
External rating
Internal ratings
Basel recommended best practices
Chapter 6. Risk Mitigation Techniques
Risk mitigation techniques
Collateral
Credit risk transfers
Securitisation
Credit derivatives
Chapter 7. Loss Given Default
Introduction
LGD under Basel II
Measurement and Estimation of LGD
Factors determining recovery rates
Business requirements for an information system for recording recovery
CREDIT RISK ARCHITECTURE
Chapter 8. Credit Risk Fortification
Credit risk management policies
Credit limit
Organisation structure
Accounting policies
Transition from controlling risks to managing risks
Changing role of banks
Capital and risk budgeting
Active portfolio management
MODELLING AND SIMULATING CREDIT RISK COMPONENTS AND DRIVERS
Chapter 9. Portfolio Management
Introduction
Componentisation, approximation and substitution
Define risk components
Identify risk factors
Transforming risk factors into risk components
Generate risk components distribution
Generate portfolio loss distribution
Applications of portfolio loss distribution
Case studies
Chapter 10. Model Validation
Model risk
Importance of validation for risk measurement
Overview of quantification process
Aims of validation techniques
Model validation techniques
Quantitative validation techniques
Developmental evidence
Issues and concerns
Supervisory validation
Best practices
IMPLEMENTING IT FOR CREDIT RISK MANAGEMENT
Chapter 11. Software and Data
Introduction
Data collection and analysis systems
Credit rating systems
Collateral management systems
Loss given default systems
Regulatory capital estimation systems
Portfolio management systems
Data sources
Bibliography
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