CreditMetrics, RiskMetrics(Algorithims), etc. are all different risk methodologies used by many banks. However, what are their advantages/disadvantages?
I would appreciate your replies!
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1$\begingroup$ do you refer to credit risks models applied in trading, portfolio management, retail market, corporate,... which market are you interested in? Could you specify that, please? @Kare $\endgroup$– QuantopikCommented Mar 30, 2015 at 22:45
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$\begingroup$ @Quantopic Thx for your reply! I am focusing with my question on portfolio management. $\endgroup$– Carol.KarCommented Mar 31, 2015 at 6:50
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1 Answer
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There exist 3 kind of models for credit portfolio management:
- Structural models (as, for instance, the KMV's based-models or credit-metrics models);
- Actuarial (or intensity) models;
- Macro-Factors (or econometrics) models;
I suggest you to read Derbali (2012), that's a simple paper that explains the main features and the differences among those kinds of models. Anyway, the main difference consists on the approach used to compute the probability of default, with the relative consequences; in fact, each of them has both advantages, limits and drawbacks and you have to choose which one is more convenient in your case.
Moreover, generally, the IACPM is a really great source for who wants to keep updating his knowledge about this topic; for instance, "Sounds Practices in Credit Portfolio Management" is a great paper that could be helpful to clarify your doubts about the credit portfolio managegement.
