Determination of Credit Risk for Debt Assets Portfolio

Xinran Wang

Master's thesis

Abstract:

For managers, it is important to manage the risk in banks. Risk management include identify and prioritization of risks, then adjust the risks to make it minimize. The aim of risk management is to assure uncertainty does not influence the company’s business goal. It has many kinds of risks, but the most important risk is credit risk. The aim of this thesis is to determine the capital requirement for unexpected losses from credit risk of the portfolio under Basel agreement include Basel I, II, III and use CreditMetricTM model to determine the economic capital of the portfolio. There are three main chapter in this thesis, in chapter two and chapter three were both theory part. In chapter two was the description of the financial risk. It was include credit risk, market risk, liquidity risk, operational risk and other risks. In chapter three was the introduction of some models that can use to calculate credit risk, the main model is CreditMetricTM model and Basel agreement. Chapter four was the most important chapter, it was the calculation part in this thesis, we find ten bonds that trade on Frankfurt stock exchange with the nominal value of each bonds is 10 million euro. The capital requirement under the risk from unexpected loss, standard approach and foundation internal rating-based approach include in Basel agreement can be used. The economic capital of ten bonds portfolio was calculate by CreditMetricTM model. All the companies and individual need to have risk management as a planning, under risk management the unexpected loss can be prepared before the accident, make the loss and cost in the minimum value, all the management and how important it is we have been shown in this thesis.

Abstract:

For managers, it is important to manage the risk in banks. Risk management include identify and prioritization of risks, then adjust the risks to make it minimize. The aim of risk management is to assure uncertainty does not influence the company’s business goal. It has many kinds of risks, but the most important risk is credit risk. The aim of this thesis is to determine the capital requirement for unexpected losses from credit risk of the portfolio under Basel agreement include Basel I, II, III and use CreditMetricTM model to determine the economic capital of the portfolio. There are three main chapter in this thesis, in chapter two and chapter three were both theory part. In chapter two was the description of the financial risk. It was include credit risk, market risk, liquidity risk, operational risk and other risks. In chapter three was the introduction of some models that can use to calculate credit risk, the main model is CreditMetricTM model and Basel agreement. Chapter four was the most important chapter, it was the calculation part in this thesis, we find ten bonds that trade on Frankfurt stock exchange with the nominal value of each bonds is 10 million euro. The capital requirement under the risk from unexpected loss, standard approach and foundation internal rating-based approach include in Basel agreement can be used. The economic capital of ten bonds portfolio was calculate by CreditMetricTM model. All the companies and individual need to have risk management as a planning, under risk management the unexpected loss can be prepared before the accident, make the loss and cost in the minimum value, all the management and how important it is we have been shown in this thesis.

Keywords

financial risk, credit risk, risk management, market risk, operational risk, liquidity risk, model, rating system, portfolio, bonds, CreditMetricTM, Basel agreement, value, calculation, capital requirement, economic capital

Keywords

financial risk, credit risk, risk management, market risk, operational risk, liquidity risk, model, rating system, portfolio, bonds, CreditMetricTM, Basel agreement, value, calculation, capital requirement, economic capital

Language used: English

Date on which the thesis was submitted / produced: 27. 4. 2018

Thesis defence

• Date of defence: 30. 5. 2018
• Supervisor: Josef Novotný
• Reader: Martina Novotná

VŠB - Technical University of Ostrava

Ekonomická fakulta

Master programme / field:
Hospodářská politika a správa / Finance