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Credit risk measurement - Coggle Diagram
Credit risk measurement
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2. The Approaches
2.1 Altman Z score
z-score = 1.2 WC/TA, + 1.4 RE/TA + 3.3EBIT/TA + O.6 Market value of E/ BV of TL + 1* sales/TA
Z < 1.81 high profitability of bankruptcy- not good area, Z> 3 low profitability of bankruptcy- good area, Z in range of 1.81 and 3.00 grey area
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Limitation: use the historical data, depend on the FS=> lack of realiaty
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3.Portfolio Management
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3.3 Credit Metrics
seeks to model portfolio risk by tracking value changes in lending assets by assessing the probability of credit changes.
Procedure to calculate
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2nd: calculate the probability-weighted present value = the transition probability multiplied by the value of the bond
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