Review and Implementation of Credit Risk Models of the Financial Sector Assessment Program (Fsap)

35 Pages Posted: 21 Jun 2006

See all articles by Renzo Avesani

Renzo Avesani

International Monetary Fund - Monetary and Financial Systems Department

Kexue Liu

International Monetary Fund (IMF)

Alin Mirestean

International Monetary Fund (IMF)

Jean Salvati

International Monetary Fund (IMF)

Date Written: June 2006

Abstract

The paper presents the basic Credit Risk+ model, and proposes some modifications. This model could be useful in the stress-testing financial sector assessments process as a benchmark for credit risk evaluations. First, we present the setting and basic definitions common to all the model specifications used in this paper. Then, we proceed from the simplest model based on Bernoulli-distributed default events and known default probabilities to the fully-fledged Credit Risk+ implementation. The latter is based on the Poisson approximation and uncertain default probabilities determined by mutually independent risk factors. As an extension we present a Credit Risk+ specification with correlated risk factors as in Giese (2003). Finally, we illustrate the characteristics and the results obtained from the different models using a specific portfolio of obligors.

Keywords: Credit risk, Financial sector, Economic models

Suggested Citation

Avesani, Renzo and Liu, Kexue and Mirestean, Alin and Salvati, Jean, Review and Implementation of Credit Risk Models of the Financial Sector Assessment Program (Fsap) (June 2006). IMF Working Paper No. 06/134, Available at SSRN: https://ssrn.com/abstract=910699

Renzo Avesani

International Monetary Fund - Monetary and Financial Systems Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Kexue Liu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alin Mirestean

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jean Salvati

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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