Topic
Credit risk
About: Credit risk is a research topic. Over the lifetime, 18595 publications have been published within this topic receiving 382866 citations.
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TL;DR: The authors found that credit risk accounts for only a small fraction of the observed corporate-Treasury yield spreads for investment grade bonds of all maturities, with the fraction smaller for bonds of shorter maturity, and that it accounts for a much higher fraction of yield spread for junk bonds.
Abstract: No consensus has yet emerged from the existing credit risk literature on how much of the observed corporate-Treasury yield spreads can be explained by credit risk. In this paper, we propose a new calibration approach based on historical default data and show that one can indeed obtain consistent estimate of the credit spread across many different economic considerations within the structural framework of credit risk valuation. We find that credit risk accounts for only a small fraction of the observed corporate-Treasury yield spreads for investment grade bonds of all maturities, with the fraction smaller for bonds of shorter maturities; and that it accounts for a much higher fraction of yield spreads for junk bonds. We obtain these results by calibrating each of the models - both existing and new ones - to be consistent with data on historical default loss experience. Different structural models, which in theory can still generate a very large range of credit spreads, are shown to predict fairly similar credit spreads under empirically reasonable parameter choices, resulting in the robustness of our conclusion.
186 citations
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TL;DR: The Credit Scoring Toolkit as mentioned in this paper provides an all-encompassing view of the use of statistical models to assess retail credit risk and provide automated decisions in eight modules, the book provides frameworks for both theory and practice.
Abstract: The Credit Scoring Toolkit provides an all-encompassing view of the use of statistical models to assess retail credit risk and provide automated decisions In eight modules, the book provides frameworks for both theory and practice It first explores the economic justification and history of Credit Scoring, risk linkages and decision science, statistical and mathematical tools, the assessment of business enterprises, and regulatory issues ranging from data privacy to Basel II It then provides a practical how-to-guide for scorecard development, including data collection, scorecard implementation, and use within the credit risk management cycle Including numerous real-life examples and an extensive glossary and bibliography, the text assumes little prior knowledge making it an indispensable desktop reference for graduate students in statistics, business, economics and finance, MBA students, credit risk and financial practitioners
186 citations
TL;DR: In this article, the authors examine the ways institutions involved in mortgage lending assess credit risk and how credit risk relates to loan performance and take a special look at the performance of loans made through nontraditional underwriting practices and "affordable" home lending programs.
Abstract: This article examines the ways institutions involved in mortgage lending assess credit risk and how credit risk relates to loan performance. An increasingly prominent tool used to facilitate the assessment of credit risk in mortgage lending is credit scoring based on credit history and other pertinent data, and the article presents new information about the distribution of credit scores across population groups and how credit scores relate to the performance of loans. In addition, this article takes a special look at the performance of loans made through nontraditional underwriting practices and "affordable" home lending programs.
186 citations
TL;DR: In this paper, the determinants of very short-term corporate yield spreads were investigated using a comprehensive database of commercial paper issued by domestic U.S. nonfinancial corporations, and they found that liquidity plays a role in the determination of spreads but credit quality is the more important determinant of spreads, even at horizons of less than 1 month.
Abstract: Employing a comprehensive database on transactions of commercial paper issued by domestic U.S. nonfinancial corporations, we study the determinants of very short-term corporate yield spreads. We find that liquidity plays a role in the determination of spreads but, somewhat surprisingly, credit quality is the more important determinant of spreads, even at horizons of less than 1 month. These results are robust across a variety of proxies for liquidity and credit risk, and have important implications for the literature on the modeling of corporate bond prices.
185 citations
TL;DR: In this paper, the cross-countries determinants of nonperforming loans (NPLs), the potential impact of supervisory devices, and institutional environment on credit risk exposure are analyzed.
Abstract: Purpose – The purpose of this paper is to empirically analyse the cross‐countries determinants of nonperforming loans (NPLs), the potential impact of supervisory devices, and institutional environment on credit risk exposure.Design/methodology/approach – The paper employs aggregate banking, financial, economic, and legal environment data for a panel of 59 countries over the period 2002‐2006. It develops a comprehensive model to explain differences in the level of NPLs between countries. To assess the role of regulatory supervision on credit risk, the paper uses several interactions between institutional features and regulatory devices.Findings – The empirical results indicate that higher capital adequacy ratio (CAR) and prudent provisioning policy seems to reduce the level of problem loans. The paper also reports a desirable impact of private ownership, foreign participation, and bank concentration. However, the findings do not support the view that market discipline leads to better economic outcomes. All...
185 citations