A Comparative Research On The Credit Portfolio Models

In modern Credit-Economy, with the need of cash flows, the demand for business development, and the scarcity of resources, the Credit Tools becomes popular, the wide use of the these will surely bring us credit risks, which lead to the volatility of the assets value and prices. Credit risk is a kind of collusion risk, also a risk related to multi-kinds of factors such as the Credit Capability of a company, and also appears as the uncertainty of the value of Credit Assets. The utilization of Credit tools and their derivatives, accelerates the process of financing and the circling of the production, and at the same time, accumulates credit risks. It's seldom for a company holds only one single credit asset, as to facilitate the business and financing, diversification becomes a trend. When a company (mostly banks) are in positions of many Credit Tools, it means the company is holding a Credit Portfolio, then, how to measure and control the credit risk of the portfolio, is an urgently problem to resolve. Also, it's the starting point to allocating the Economy Capital.Should say, a Credit Portfolio is also an asset portfolio, the only difference is the constitution of the portfolio. Portfolio Management Theory offers us the basic study methods and theoretical foundation, and, as we can see, Credit Portfolio Management has deep related to far-reaching fields in our daily economy, thus, comes the diversifying of Credit Portfolio Management theory.It's the commercial banks that first put forward the concept of Credit Portfolio. The banks make their credit management policies in terms of their own business and scale of credit assets etc., for some advanced banks, they even have their own internal credit portfolio management models. Meanwhile, the Basel Accord also higher the precedence of the Credit Portfolio Management, and work out a standard method fits for all kinds companies in facing of a credit portfolio. Whatever, the stress the world laid on this is obvious.The overall background gives birth to the great models, CreditMetrics, KMV, CreditRisk+, and CreditPortfolioView. They come from practice and modifications. Noting that the models are quiet different in the first glance, but they are all ascertained by the testers and users. In fact, they share a common infrastructure of managing the credit portfolio, this had been proved by H.U.Koyluoglu and A.Hickman for years. Base on this, many scholars began to dig out the potential of this fields and keep widening the dimension of it. Their creativity and diligence are awarded by the new conclusions, methods and concepts.This paper will give us a detailed introduction, comparisons of the main Credit Portfolio Models, and list some important progress made by recent studies. In order to reinforce the focus, we will show out the four classic models respectively in appendix. The structure of this paper is as below: the first part, gives a basic introduction to the Credit-Economy background as a whole and the four classic models; the second part, we layout the comparisons of the models, the common mainframe of the models, and the relationship of these models and the Basel II Standard Method; the third part, by studying on the up-to-date researches, we sum up and select some essential results to show the future of the Credit Portfolio Management; and the last part, summarizes the content of this paper and draws a conclusion.This paper intends to dig out the potential of the models, the application prospect as well as foreseeing the future of the models by analyzing the classical models and their up-to-date researches. We expect the co-functioning of the models, credit derivatives and other risk-controlling instruments, and help us to utilize and allocate our economy capital better and efficiently. That is to fulfill the terminal target of maximizing the profits while with the portfolio credit risk under control.