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Chapter 11
Financial Institutions Management, 3/e
By Anthony Saunders
Irwin/McGraw-Hill
1
Evaluation of Credit Risk
Irwin/McGraw-Hill
2
Types of Loans:
Irwin/McGraw-Hill
4
Lending Rates and Rationing
Irwin/McGraw-Hill
5
Measuring Credit Risk
Irwin/McGraw-Hill
6
Credit Scoring Models:
Irwin/McGraw-Hill
8
Linear Discriminant Model
Problems:
• Only considers two extreme cases (default/no
default).
• Weights need not be stationary over time.
• Ignores hard to quantify factors including
business cycle effects.
• Database of defaulted loans is not available to
benchmark the model.
Irwin/McGraw-Hill
9
Term Structure Based Methods:
Irwin/McGraw-Hill
11
RAROC Models
Irwin/McGraw-Hill
12
Option Models:
Irwin/McGraw-Hill
13
Applying Option Valuation Model
Irwin/McGraw-Hill
16