Financial Institutions and Services
Abstract
The main purpose of this paper is to examine theoretically the current models of credit
portfolio management. There are currently three types of models to evaluate the risk of credit portfolio;
the structural models (Moody’s KMV model and CreditMetrics model) also defined as the models of
the value of the firm, the actuarial models and the econometric models (the Macro-factors model). The
development of these models is based on a theoretical analysis developed by several researchers. Then,
the evaluation of the default frequencies and the size of the loan portfolio are defined by credit risk
factors which are conditioned by macroeconomic and microeconomic circumstances. Also, we
sundeexplain the different characteristics of these models. Additionally, the purpose of these models is
to assess the default probability of credit portfolios.
References
Ali, A. & Daly, K. (2010). Macroeconomic determinants of credit risk: Recent evidence from a cross
country study. International Review of Financial Analysis, (19), pp. 165–171.
Allen, L. & Saunders, S. (3003). A survey of cyclical effects in credit risk measurement models. BIS
Working Paper, No. 126, New York University.
Bensoussan, A.; Crouhy, M. & Galai, D. (1995). Stochastic equity volatility related to the leverage
effect II: Valuation of European equity options and warrants. Applied Mathematical Finance, Vol. 2,
pp. 43-59.
Berry, M.; Burmeister, E. & McElroy, M. (1998). Sorting our risks using known APT factors. Financial
Analysts Journal, 44(2), pp. 29-42.
Credit Suisse Financial Products (1997). CreditRisk+: A Credit Risk Management Framework.
Crouhy, M.; Galai, D. & Mark, R. (2000). A comparative analysis of current credit risk models. Journal
of Banking & Finance, (24), pp. 59-117.
Figlewski, S.; Frydman, H. & Liang, W. (2012). Modeling the effect of macroeconomic factors on
corporate default and credit rating transitions. International Review of Economics and Finance, (21),
pp. 87–105.
Glasserman, Paul (2010). Risk horizon and rebalancing horizon in portfolio risk measurement.
Mathematical Finance, (22)2, pp. 215-249.
Grundke, P. (2005). Risk Measurement with Integrated Market and Credit Portfolio Models. Journal
of Risk, 7(3), pp. 63–94.
Grundke, P. (2009). Importance sampling for integrated market and credit portfolio models. European
Journal of Operational Research, (194), pp. 206–226.
Gupton, G.M.; Finger, C.C. & Bhatia, M. (1997). CreditMetricsTM – Technical Document. Morgan
Guaranty Trust Company.
Hamisultane, H. (2008). Modèles de gestion du risque de crédit. Investment System R&D, Document
n. 1.
Huang, S.J. & Yu, J. (2010). Bayesian analysis of structural credit risk models with microstructure
noises. Journal of Economic Dynamics & Control, (34), pp. 2259-2272.
Jarrow, R. & Turnbull, S. (1995). Pricing derivatives on financial securities subject to credit risk. The
Journal of Finance, (50), pp. 53–85.
Jarrow, R.A.; Lando, D. & Yu. F. (2001). Default risk and diversification: theory and applications.
Mathematical Finance, (15), pp. 1-26.
Jarrow, R.A. (2011). Credit market equilibrium theory and evidence: Revisiting the structural versus
reduced form credit risk model debate. Finance Research Letters, (8), pp. 2–7.
Lee, W.C. (2011). Redefinition of the KMV model’s optimal default point based on geneticalgorithms–
Evidence from Taiwan. Expert Systems with Applications, (38), pp. 10107-10113.
Liao, H.H.; Chen, T.K. & Lu. C.W. (2009). Bank credit risk and structural credit models: Agency and
information asymmetry perspectives. Journal of Banking & Finance, (33), pp. 1520-1530.
Merton, R. (1974). On the pricing of corporate debts: the risk structure of interest rates. Journal of
Finance, (29), pp. 449–470.
Musto, D.K. & Souleles, N.S. (2006). A portfolio view of consumer credit. Journal of Monetary
Economics, (53), pp. 59-84.
Tarashev, N. (2010). Measuring portfolio credit risk correctly: Why parameter uncertainly matters.
Journal of Banking & Finance, (34), pp. 2065-2076.
Vetendorpe, A.; Ho, N.D.; Vetuffel, S. & Dooren, P.V. (2008). On The Parameterization of the
CreditRisk+ Model for Estimating Credit Portfolio Risk. Insurance: Mathematics and Economics,
42(2), pp. 736-745.
Xiaohong, C.; Xiaoding, W. & Desheng, W.D. (2010). Credit risk measurement and early warning of
SMEs: An empirical study of listed SMEs in China’ Decision Support Systems, (49), pp. 301–310.
Zhang, Q. & Wu, M. (2011). Credit Risk Migration Based on Jarrow-Turnbull Model. Systems
Engineering Procedia, (2), pp. 49-59.
country study. International Review of Financial Analysis, (19), pp. 165–171.
Allen, L. & Saunders, S. (3003). A survey of cyclical effects in credit risk measurement models. BIS
Working Paper, No. 126, New York University.
Bensoussan, A.; Crouhy, M. & Galai, D. (1995). Stochastic equity volatility related to the leverage
effect II: Valuation of European equity options and warrants. Applied Mathematical Finance, Vol. 2,
pp. 43-59.
Berry, M.; Burmeister, E. & McElroy, M. (1998). Sorting our risks using known APT factors. Financial
Analysts Journal, 44(2), pp. 29-42.
Credit Suisse Financial Products (1997). CreditRisk+: A Credit Risk Management Framework.
Crouhy, M.; Galai, D. & Mark, R. (2000). A comparative analysis of current credit risk models. Journal
of Banking & Finance, (24), pp. 59-117.
Figlewski, S.; Frydman, H. & Liang, W. (2012). Modeling the effect of macroeconomic factors on
corporate default and credit rating transitions. International Review of Economics and Finance, (21),
pp. 87–105.
Glasserman, Paul (2010). Risk horizon and rebalancing horizon in portfolio risk measurement.
Mathematical Finance, (22)2, pp. 215-249.
Grundke, P. (2005). Risk Measurement with Integrated Market and Credit Portfolio Models. Journal
of Risk, 7(3), pp. 63–94.
Grundke, P. (2009). Importance sampling for integrated market and credit portfolio models. European
Journal of Operational Research, (194), pp. 206–226.
Gupton, G.M.; Finger, C.C. & Bhatia, M. (1997). CreditMetricsTM – Technical Document. Morgan
Guaranty Trust Company.
Hamisultane, H. (2008). Modèles de gestion du risque de crédit. Investment System R&D, Document
n. 1.
Huang, S.J. & Yu, J. (2010). Bayesian analysis of structural credit risk models with microstructure
noises. Journal of Economic Dynamics & Control, (34), pp. 2259-2272.
Jarrow, R. & Turnbull, S. (1995). Pricing derivatives on financial securities subject to credit risk. The
Journal of Finance, (50), pp. 53–85.
Jarrow, R.A.; Lando, D. & Yu. F. (2001). Default risk and diversification: theory and applications.
Mathematical Finance, (15), pp. 1-26.
Jarrow, R.A. (2011). Credit market equilibrium theory and evidence: Revisiting the structural versus
reduced form credit risk model debate. Finance Research Letters, (8), pp. 2–7.
Lee, W.C. (2011). Redefinition of the KMV model’s optimal default point based on geneticalgorithms–
Evidence from Taiwan. Expert Systems with Applications, (38), pp. 10107-10113.
Liao, H.H.; Chen, T.K. & Lu. C.W. (2009). Bank credit risk and structural credit models: Agency and
information asymmetry perspectives. Journal of Banking & Finance, (33), pp. 1520-1530.
Merton, R. (1974). On the pricing of corporate debts: the risk structure of interest rates. Journal of
Finance, (29), pp. 449–470.
Musto, D.K. & Souleles, N.S. (2006). A portfolio view of consumer credit. Journal of Monetary
Economics, (53), pp. 59-84.
Tarashev, N. (2010). Measuring portfolio credit risk correctly: Why parameter uncertainly matters.
Journal of Banking & Finance, (34), pp. 2065-2076.
Vetendorpe, A.; Ho, N.D.; Vetuffel, S. & Dooren, P.V. (2008). On The Parameterization of the
CreditRisk+ Model for Estimating Credit Portfolio Risk. Insurance: Mathematics and Economics,
42(2), pp. 736-745.
Xiaohong, C.; Xiaoding, W. & Desheng, W.D. (2010). Credit risk measurement and early warning of
SMEs: An empirical study of listed SMEs in China’ Decision Support Systems, (49), pp. 301–310.
Zhang, Q. & Wu, M. (2011). Credit Risk Migration Based on Jarrow-Turnbull Model. Systems
Engineering Procedia, (2), pp. 49-59.
Published
2021-06-24
How to Cite
Collective Authors. (2021). Financial Institutions and Services: Array. Acta Universitatis Danubius. Œconomica, 14(5). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1180
Issue
Section
Articles
License
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
