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Essay / Research Paper Abstract
This 19 page paper is written in two parts. The first part looks at the various approaches to credit risk measurement in banking. This includes consideration of default-mode models (DM) and marked-to-market models (MTM) as well as reduced-form models and hybrids such as CreditMetrics. The case of BCCI is then considered with reference to the use of credit risk measurement. The second part of the paper looks at tools such as value at Rick (VaR) and the Monte Carlo simulation model how they can be used and their advantages and disadvantages. The bibliography cites 12 sources.
Page Count:
19 pages (~225 words per page)
File: TS14_TEbankcredt.rtf
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Unformatted sample text from the term paper:
risk management processes we need to look at the basic of risk management, what the risks are and how they can be managed. There are a number of regulatory
requirements such as solvency ratios and capitalisation ratios to ensure that the bank as a whole are solvent and abiding by the standards set down by either a treasury or
a central bank. However accurate risk assessment can be difficult with the need to look at a number of different types of risks. Risk control is therefore dependant on risk
assessment Traditional risk management has taken place with the use of strict underwriting standards and the enforcement of those standards as well as counterparty monitoring. However, these have their
focus on risk reducing and as such are not designed to produce risk assessment results. In addition to this there also tends to be the individual focus on different element,
hence the reason why credit risk managers have sought to develop methodologies that can cope with interrogating different risk elements, such as the exposure risk and the probabilities of a
change in risk ratings and create a single measure. One example is that of Value at Risk (VaR). Credit risk managers need to look at portfolios of risk as well
as individual risk, looking as aspects such as concentration risk. This is often dealt with by way of exposure limits to particular industries or user groups to ensure risk diversification
(Howells and Bain, 1998). Credit risk management has become more important due the high level of bankruptcy that have been seen over the last decade. In addition to
this the development of the global economy, especially with the Asian and developing nations and in hi tech industries has many opportunities and requires capital which bank, in their role
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