Revisiting Credit Scoring Models in a Basel 2 Environment
37 Pages Posted: 3 Nov 2008
Date Written: May 2002
This paper discusses two of the primary motivating influences on the recentdevelopment/revisions of credit scoring models, i.e., the important implications ofBasel 2 s proposed capital requirements on credit assets and the enormous amountsand rates of defaults and bankruptcies in the US in 2001-2002. Two of the more prominent credit scoring techniques, Z-Score and KMV s EDF models, are reviewed. Finally, both models are assessed with respect to default probabilities in general and in particular to the infamous Enron debacle. In order to be effective, these and other credit risk models should be utilized by firms with a sincere credit risk culture.
Keywords: Credit Risk Models, Default Probabilities, Basel 2, Z-Score, KMV
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