Determination of Credit Risk for Debt Assets Portfolio

Abstract

Along with the deepening of global financial innovation and the development of modern banking, risk management becomes more and more complicated and important. Among all the financial risks, credit risk is the most frequent and important risk so that not only individual investors and corporates but also banks need to pay more attention. To measure credit risk, scholars and researchers from all over the world contribute to conducting an effective method. Nowadays, one popular measurement technique of credit risk is CreditMetricsTM model with the help of VaR, developed by J.P.Morgan. Moreover, Basel Accords from Basel Committee play an important role in credit risk measurement and management as well. The main objective of this thesis is to estimate the economic capital of ten selected bonds portfolio under CreditMetricsTM model and capital requirement for unexpected losses from credit risk under Basel Accord. It gives a possible way to compare the results from Basel Accords, including Basel I, Basel II and Basel III, and from CreditMetricsTM model.

Along with the deepening of global financial innovation and the development of modern banking, risk management becomes more and more complicated and important. Among all the financial risks, credit risk is the most frequent and important risk so that not only individual investors and corporates but also banks need to pay more attention. To measure credit risk, scholars and researchers from all over the world contribute to conducting an effective method. Nowadays, one popular measurement technique of credit risk is CreditMetricsTM model with the help of VaR, developed by J.P.Morgan. Moreover, Basel Accords from Basel Committee play an important role in credit risk measurement and management as well. The main objective of this thesis is to estimate the economic capital of ten selected bonds portfolio under CreditMetricsTM model and capital requirement for unexpected losses from credit risk under Basel Accord. It gives a possible way to compare the results from Basel Accords, including Basel I, Basel II and Basel III, and from CreditMetricsTM model.