Credit Risk Measurement: New Approaches to Value at Risk and by Anthony Saunders

By Anthony Saunders

Operating within the banking i used to be grew to become directly to this ebook through a colleague and what a mammoth waste of time interpreting this was once. the majority of this book's versions are superseded and if Mr. Saunders used to be attempting to write a ancient piece he has comprehensive that during spades. not anything during this e-book is appropriate and it really is noticeable the esteemed Mr. Saunders lent his identify to a truly terrible booklet that he most likely must have glanced via if no longer learn. Linda Allen should still most likely get a few genuine global event simply because she is losing people's time together with her study.

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Extra info for Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms

Example text

3, the OCC pass grade is divided into six different categories (ratings 1 to 6). Ratings 7 to 10 correspond to the OCC’s four low-quality loan ratings. These loan-rating systems do not exactly map into bond-rating systems, especially at the lower-quality end. One reason is that bond-rating systems are supposed to rate an individual loan (including its covenants and collateral backing), whereas loan-rating systems are more oriented to rating the overall borrower. This lack of one-to-one mapping between bond ratings and loan ratings raises a flag as to (1) the merits of newer models that rely on bond data to value loans and (2) the proposed new standardized model of the BIS capital requirements (see Chapter 3) that ties capital requirements to external ratings.

33 However, this considers only one possible credit event—default—and ignores the possibility of losses resulting from credit-rating downgrades. That is, deterioration in credit quality caused by increases in PD or LGD will cause the value of the loan to be written down—in a mark-to-market sense—even prior to default, thereby resulting in portfolio losses (if the loan’s value is marked to market). Thus, credit risk measurement models can be differentiated on the basis of whether the definition of a “credit event” includes only default (the default mode or DM models) or whether it also includes nondefault credit quality deterioration (the mark-to-market or MTM models).

3 (Continued) Bond Rating Score Risk Level CC (continued) Description and well-defined weakness jeopardizes collection of debt. The asset is inadequately protected by the current sound net worth and paying capacity of the obligor or pledged collateral. There may already have been a partial loss of interest. C 9 D 10 Doubtful Full repayment questionable. Serious problems exist to the point where a partial loss of principal is likely. Weaknesses are so pronounced that, on the basis of current information, conditions, and values, collection in full is highly improbable.

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