Credit risk management is a process in which banks estimate probability of default (PD) for each loan applicant. Data sets of previous loan applicants are built by gathering their data, and these internal data sets are usually completed using external credit bureau’s data and finally used for estimating PD in banks. There is also a continuous interest for bank to use rule based classifiers to b...

We study the effects of credit risk in a supply chain where one retailer deals with competing risky suppliers who may default during their production lead-times. The suppliers, who compete for business with the retailer by establishing wholesale prices, are leaders in a Stackelberg game with the retailer. The retailer, facing uncertain future demand, chooses order quantities while weighing the ...

The purpose of this paper is to analyze the risks of synthetic CDO structures and their sensitivity to model parameters. In order to measure these sensitivities, I also introduce the latest techniques in the pricing and risk management of synthetic CDOs. I show how to model the conditional and unconditional default distributions of a typical synthetic deal using a simple mathematical framework....

We model aggregate credit losses on large portfolios of financial positions contracted with firms subject to both cyclical default correlation and direct default contagion processes. Cyclical correlation is due to the dependence of firms on common economic factors. Contagion is associated with the local interaction of firms with their business partners. We provide an explicit normal approximati...

In a default event, several obligors simultaneously experience financial difficulty in servicing their debt to the point where entire market can sudden yet significant jump credit default. To help protect lenders against jump-to-default regulators require banks hold capital equivalent risk charge as buffer losses they may incur. The Basel regulatory committee has articulated and set modelling g...

The existing vast literature on credit risk assessment and default prediction provides models building mostly in quantitative indicators. We present the results of a survey carried out of experts from the main banks in Portugal, conveying evidence on the dominant procedures undertaken by the Portuguese banking system. Our analysis concludes on the relevance of qualitative criteria, particularly...