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How the default probability is defined by the CreditRisk+ model?

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  • Abdelkader Derbali

    (Institut Supérieur de Gestion Sousse, Université de Sousse)

Abstract

The aim of this paper is to investigate theoretically one of the current models of credit portfolio management. There are currently three types of models to consider the risk of credit portfolio: the structural models (Moody's KMV model and CreditMetrics model) also defined by the models of the value of the firm, reduced form models also defined by models with intensity models (the actuarial models) and the econometric models (the Macro-factors model). The development of the three types of models is based on a theoretical basis developed by several researchers. The evolution of their default frequencies and the size of the loan portfolio are expressed as functions of macroeconomic and microeconomic conditions as well as unobservable credit risk factors, which explained by other factors. We developed this paper to explain the different characteristics of the CreditRisk+ models. The purpose of this model is to calculate the default probability of credit portfolio.

Suggested Citation

  • Abdelkader Derbali, 2018. "How the default probability is defined by the CreditRisk+ model?," Working Papers hal-01696011, HAL.
    • Handle: RePEc:hal:wpaper:hal-01696011
    Note: View the original document on HAL open archive server: https://hal.science/hal-01696011
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    References listed on IDEAS

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    1. A. Bensoussan & M. Crouhy & D. Galai, 1995. "Stochastic equity volatility related to the leverage effect II: valuation of European equity options and warrants," Applied Mathematical Finance, Taylor & Francis Journals, vol. 2(1), pages 43-60.
    2. Ali, Asghar & Daly, Kevin, 2010. "Macroeconomic determinants of credit risk: Recent evidence from a cross country study," International Review of Financial Analysis, Elsevier, vol. 19(3), pages 165-171, June.
    3. Crouhy, Michel & Galai, Dan & Mark, Robert, 2000. "A comparative analysis of current credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 59-117, January.
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    More about this item

    Keywords

    Risk management; Credit risk; Default probability; Structural models; KMV model; CreditRisk+; Credit Portfolio View;
    All these keywords.

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