A Survey of Cyclical Effects in Credit Risk Measurement Models

66 Pages Posted: 11 Nov 2008  

Linda Allen

City University of New York, CUNY Baruch College - Zicklin School of Business - Department of Economics and Finance

Anthony Saunders

New York University - Leonard N. Stern School of Business

Multiple version iconThere are 4 versions of this paper

Date Written: May 2002

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.

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: https://ssrn.com/abstract=1298821

Linda Allen (Contact Author)

City University of New York, CUNY Baruch College - Zicklin School of Business - Department of Economics and Finance ( 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)

Paper statistics

Downloads
47
Abstract Views
471