Risk Measurement and Credit Risk Management

Gerhard Larcher
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Gerhard Larcher: Johannes Kepler University of Linz

Chapter 1 in The Art of Quantitative Finance Vol. 3, 2023, pp 1-93 from Springer

Abstract: Abstract The central topic in this chapter is the efficient measurement of risk of portfolios of financial products. We introduce the concepts “value at risk (VaR)” and “conditional VaR (cVaR)”, and we estimate VaR and cVaR for different types of portfolio. Thereby we demonstrate the effect of reducing risk by diversification. Then we specifically will deal with credit risk management. Especially we will introduce in detail two of the most important credit risk management systems, namely, Credit Metrics (which was developed by J.P. Morgan) and Credit Risk+ (developed by Credit Suisse First Boston). For both systems we provide explicit elaborated examples.

Keywords: Value at risk (VaR); Conditional VaR; Diversification; Credit risk management; Rating classes; Rating transition probabilities; Default probabilities; Credit Metrics; Credit Risk+ (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-031-23867-3_1

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DOI: 10.1007/978-3-031-23867-3_1

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