Download This PaperA Survey of Cyclical Effects in Credit Risk Measurement Models
NYU Stern School of Business, Finance Working Paper No. FIN-02-018
43 Pages Posted: 13 Dec 2005
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A Survey of Cyclical Effects in Credit Risk Measurement Models
A Survey of Cyclical Effects in Credit Risk Measurement Models
A Survey of Cyclical Effects in Credit Risk Measurement Models
A Survey of Cyclical Effects in Credit Risk Measurement Models
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.
Keywords: macroeconomic, systematic risk effects, credit risk exposure, PD, LDG
Suggested Citation: Suggested Citation
Linda Allen
City University of New York, 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 (Contact Author)
New York University - Leonard N. Stern School of Business ( email )
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New York, NY 10012-1126
United States
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