The Development Of Modern Credit Risk Management Models And Their Comparative Study

In this paper, the writer firstly introduces the concept of credit risk and relevant theories concerning the management of credit risks. Then the writer gives a brief review of several traditional methods of credit risk management and the four most common modern management model of credit risks, with focuses on comparative analysis into the modern models from the perspectives of numerical method, theoretical basis, etc. On this basis, the writer respectively conducts analysis into the applicability of these models in credit risk management in China's commercial bank, in combination of the analysis of the present situation of credit risk management in China's commercial bank and in the financial market. The way of analysis and its conclusions of this paper successfully account for, to some extent, the fact that some modern models can be applied in China after improvement and some are still inapplicable. Lastly, with interpretation to New Basel Agreement, the writer conducts an analysis into the possible influence that the new agreement may bring on the risk management of China's commercial bank. The thesis is composed of following parts:Chapter 1 is concerned with the research background and the significance of the thesis, with focuses on the research significance of the thesis, the problems to be solved and the possible creative achievements in this thesis on the basis of introducing the present situation both home and abroad concerning credit risk management theories.Chapter 2 is an account of the basic concepts and theories in credit risk management, which is the presupposition of the research into credit risk management models. Our purpose at this point is to better understand the nature of credit risk management models.Chapter 3 is a review of and comment on credit risk management models. Though the research target is modern credit risk management model, it is still necessary to give a brief review of the traditional models. The focus in this chapter is the review of several modern models which have been received the most studies, with brief comments on their respective theoretical basis, philosophical background, their advantages and disadvantages.Chapter 4 is a comparative study between some modern credit risk management models. The writer first makes a comparison among several models from the perspectives of the factors concerning credit risk drive and the fluctuation of some credit events. Secondly, the writer introduces two common tests of credit risk management models. Thirdly, some existing problems are analyzed in the development of modern models, and lastly, the latest development direction of modern models is stated.Chapter 5 presents an analysis to the current situation of credit risk management in China's commercial banks. A case study is given to demonstrate some major problems and their causes in our current credit risk management in China's commercial banks. And then internal grade evaluation is focused on emphatically, because it is a presupposition for credit risk management to evaluate the risks scientifically.Chapter 6 is the applicable research for modern credit risk management models to be applied in China's commercial banks. The writer firstly presents the grey-target model for the evaluation of enterprise's credit on the basis Altman coefficient, which was proposed by the writer and Zhang Hua (2006). The model is a credit evaluation model on the basis of Altman Z-score system in combination with grey system theory. And secondly, a task that the writer has participated in conducting is introduced, in which the Merton principle is made use of in the credit analysis of the bank's mortgage loans. Thirdly, the writer suggests a Default-Mode model applicable to China's commercial banks according to the features in CreditRisk+ Model and the guideline of model construction. Then the conclusion that Mark-to-Market Model is hard to apply in China's commercial banks on the basis of the analysis to the present situation of credit risk management in China. And lastly, the writer points out the problems to be noted in learning from and applying modern credit risk management models in China's commercial banks.Chapter 7 is concerned with the New Basel Capital Agreement and the credit risk management in China's commercial banks. The writer firstly introduces the background, major contents and some new points compared to the former agreement in the new agreement. Secondly, the writer points out the possible influence it might have on the credit risk management in China's commercial banks. Then the writer accounts for the notion of comprehensive risk management, the background for its appearance and its requirements to our commercial banks. The last part is a conclusion of the whole thesis and an expectation to the quantitative management of credit risks in China's commercial banks.The research achievement in this paper mainly include:1. The grey target model is introduced into the credit evaluation of enterprises, and the Altman coefficient in the classical Z-core model for the evaluation of financial situation of enterprise is introduced into the grey target model. The differentiate coefficient in the grey-target model is identified by demonstrating differentiating field with reference to some companies, in order to provide a general method for the evaluating of enterprise credit. This method is supposed to be more applicable because it does not require big-scale samples and data of typical distribution.2. Mortgage loan is regarded as company bond in which there is a risk of default. Merton theory and the principle of KMV model are applied in the analysis of the default and the index system include the default probability, predicted loss and the risk premium of default risk. The research results show that the fluctuating rate of housing price, the percentage of loan / house price demonstrate a positive relevance relationship with the default risk, and there is a negative relevance relationship between the no-risk interest rate and the default risk. The influence exerted by loan term on default risk is relatively complex.3. According to the principles in the CreditRisk+ model, it is possible China's commercial banks to document and establish their own credit risk management model of the Default-Mode. The establishment of the model can be employed to calculate the ratio between the predicted default frequency and default regain on the base of the portfolio and their historical default data. Then the model will be used to calculate the anticipated credit loss and non-anticipated credit loss of portfolio; and lastly, the model can be applied in the credit risk evaluation of portfolio.