Validation of credit portfolio models
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Scientific Essay from the year 2008 in the subject Business economics - Investment and Finance, grade: 1, , language: English, abstract: Portfolio credit risk models give a probability distribution for portfolio credit losses. Validation of the model includes testing whether observed losses were consistent with the model¿s predictions. The main focus when testing credit portfolio models is on the ¿high loss¿ end of the distribution, which, assuming normal distribution, means ¿low probability¿. Normally one or five percent Value at risk is used, which means that a given loss within specifi...
Scientific Essay from the year 2008 in the subject Business economics - Investment and Finance, grade: 1, , language: English, abstract: Portfolio credit risk models give a probability distribution for portfolio credit losses. Validation of the model includes testing whether observed losses were consistent with the model¿s predictions. The main focus when testing credit portfolio models is on the ¿high loss¿ end of the distribution, which, assuming normal distribution, means ¿low probability¿. Normally one or five percent Value at risk is used, which means that a given loss within specified time will be observed with a probability of one or five percent respectively. ¿A risk manager has two jobs: make people take more risk the 99% of the time it is safe to do so, and survive the other 1% of the time. Value at risk is the boarder.¿1
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