CREDIT RISK ANALYSIS
AN INTRODUCTION
(chap 4)

Define credit risk

the obligations of the lender

the payment dates for interest and principal

the obligations of the borrower

the maturity day

credit risk analysis tool

Risk premium analysis

Econometrics

Expert systems

Hybrid – system

five Cs analysis

PARSER

=> success and failure of expert systems relies on the experience and performance of the lending officer

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Repayment capacity

Security

Amount required and why

Expedience or future profitable opportunities

Personal characteristics of the borrower

Return from the loan

For one-period loan

Risk premiums over time

p (1 + r) = 1 + i

(r – i) = [(1+ i) /(e + p – pe)] – (1 + i)

CDP = 1- p(1) p(2) p(n)

Regression analysis

Discriminant analysis

Regression analysis

Advanced analysis

z =1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Expected default frequency

Mortality models