# Modelling the Cost of Risk

I would like to read something about the cost of risk. Could anyone recommend some reference about how it is calculated or modelled?

• Can you be more specific? Cost of credit risk in what capacity? – dmanuge Dec 14 '15 at 16:14
• It is mentioned in this report: unicreditgroup.eu/content/dam/unicreditgroup/documents/en/… There is also a presentation here: www2.humusoft.cz/www/papers/finsem13/finsem13-neckar.pdf – Egodym Dec 14 '15 at 16:27
• It is defined on Page 280 (took me a while to get there) as: Cost of risk The ratio between loan loss provisions and loans and receivables with customers. It is one of the indicators of the bank assets’ level of risk: the lower the ratio, the less risky the bank assets. – noob2 Dec 14 '15 at 16:39
• And what about the presentation? It talks about "cost of credit risk", and consider the cost of risk as a method to calculate it (slide 18). I guess the interesting case is when $Cost Of Risk = provisions/reserves$. How can I model this quantity? – Egodym Dec 14 '15 at 17:01