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Credit Risks

In: Risk Management in Banks and Insurance Companies

Author

Listed:
  • Anja Blatter

    (Nürtingen-Geislingen University of Applied Sciences)

  • Sean Bradbury

    (Nürtingen-Geislingen University of Applied Sciences)

  • Pascal Bruhn

    (Nürtingen-Geislingen University of Applied Sciences)

  • Dietmar Ernst

    (Nürtingen-Geislingen University of Applied Sciences)

Abstract

Credit risks describe possible losses resulting from a deterioration in the creditworthiness of a debtor, which includes in the worst case its default. One risk parameter for measuring credit risk is the Probability of Default (PD) within a certain period of time (often within 1 year). The convention is that a debt obligation is considered to be in default if the debtor is more than 90 days in arrears with the loan obligation and it is unlikely that the debtor will repay the debt. There are various approaches for determining default probabilities. One approach is based on external and internal ratings, while other approaches are based on Merton’s model, one of the best-known models in credit risk modelling.

Suggested Citation

  • Anja Blatter & Sean Bradbury & Pascal Bruhn & Dietmar Ernst, 2024. "Credit Risks," Springer Texts in Business and Economics, in: Risk Management in Banks and Insurance Companies, chapter 0, pages 93-118, Springer.
  • Handle: RePEc:spr:sptchp:978-3-031-42836-4_3
    DOI: 10.1007/978-3-031-42836-4_3
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