An Introduction to Credit Risk Modeling

Teri Geske,
Senior Vice President, Product Development and Marketing

New approaches to quantifying the risk of loss from credit events (downgrades or defaults) at both the individual issuer and the portfolio level have been developed and refined in recent years. This paper is intended to serve as an introduction to the leading approaches to modeling credit risk, highlighting the advantages and disadvantages of the different methods. While credit risk models rely on mathematical techniques that can be quite complex, this paper attempts to provide a fundamental understanding of the key concepts to the non-technical practitioner. For more in-depth analysis of these topics, a list of Suggested Readings is provided at the end of this paper.