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
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