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A Survey of Cyclical Effects in Credit Risk Measurement Models


Linda Allen


Baruch College, CUNY - Zicklin School of Business

Anthony Saunders


New York University - Leonard N. Stern School of Business
May 2002

NYU Working Paper No. S-FI-02-05

Abstract:     
We survey both academic and proprietary models to examine how macroeconomic and systematic risk effects are incorporated into measures of credit risk exposure. Many models consider the correlation between the probability of default (PD) and cyclical factors. Few models adjust loss rates (loss given default) to reflect cyclical effects. We find that the possibility of systematic correlation between PD and LGD is also neglected in currently available models.

Number of Pages in PDF File: 66

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Date posted: November 11, 2008  

Suggested Citation

Allen, Linda and Saunders, Anthony , A Survey of Cyclical Effects in Credit Risk Measurement Models (May 2002). NYU Working Paper No. S-FI-02-05. Available at SSRN: http://ssrn.com/abstract=1298821

Contact Information

Linda Allen (Contact Author)
Baruch College, CUNY - Zicklin School of Business ( email )
17 Lexington Avenue
New York, NY 10010
United States
646-312-3463 (Phone)
646-312-3451 (Fax)
HOME PAGE: http://stern.nyu.edu/~lallen
Anthony Saunders
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)
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