Chapter

An Introduction to Credit Risk Models

Credit Risk Modeling

  1. Donald R. van Deventer PhD

Published Online: 15 DEC 2012

DOI: 10.1002/9781118182635.efm0023

Encyclopedia of Financial Models

Encyclopedia of Financial Models

How to Cite

van Deventer, D. R. 2012. An Introduction to Credit Risk Models. Encyclopedia of Financial Models. .

Author Information

  1. Chairman and Chief Executive Officer, Kamakura Corporation

Publication History

  1. Published Online: 15 DEC 2012

Abstract

Credit risk technology has evolved with advances in computer science and information technology. Traditional credit ratings date back to 1860, an era when the cost of collecting and analyzing corporate credit information was high. The commercial advantages of a central provider of credit risk analysis were high. With the advent of better computer technology and databases of corporate financial information and stock prices, quantitative approaches to credit risk assessment have become more popular and increasingly accurate. Credit scoring is a quantitative approach to retail credit assessment, but, in the corporate world, more and more credit analysts prefer a default probability with an explicit maturity to a “credit rating” or “credit score.”

Keywords:

  • credit risk modeling;
  • default probability;
  • Merton model;
  • default probability modeling;
  • term structure of default probabilities;
  • Financial Times;
  • Kamakura Corporation Technical Guide