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.
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References
Credit Metrics. Technical Document. Risk Metrics Group, J.P. Morgan & Co., 2007.
Lucia Del Chicca and Gerhard Larcher.“Hybrid Monte Carlo-Methods in Credit Risk Management”. In: Monte Carlo Methods and Applications 20.4 (2014), pp. 245–260.
Credit Risk+ . A Credit Risk Management Framework. Credit Suisse First Boston, 1997.
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Larcher, G. (2023). Risk Measurement and Credit Risk Management. In: The Art of Quantitative Finance Vol. 3. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-031-23867-3_1
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DOI: https://doi.org/10.1007/978-3-031-23867-3_1
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Online ISBN: 978-3-031-23867-3
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