A Research About Option-GARCH Method In Credit Risk Measurement

When commercial banks develop their business, the success risk management which is decided to asset quality and the long-term steady development as the support appears more important. In this US secondary crisis, American biggest bank Citi bank express that its overlying mortgage loan debt and the related negotiable securities possibly lose 11,000 million dollars. Banking system's trouble is usually created by the bad account or the credit risks. Because the bank generally not disperses its credit risks in the country or the industrial, moreover bank is the high leverage corporation, domestic economy slide is fatal to commercial bank. This is also why people are interested to the measurement of credit risks the, especially in June, 2004 the coming of Basel accords 2 which is for the purpose of promoting and encourage the bank strengthening risk management ability, enhancing the risk assessment level. New accord proposed there method about the risk measurement: The Standardized approach, The Internal rating-Based approach and advanced approach. The core of accords is IRB, establishes internal rating-Based approach for Commercial bank enable the bank to be better measure risk based on line of business to enhance risk sensitivity. The exposure is classified as corporate exposure, bank exposure, sovereignty exposure, retail exposure, specialized loan exposure and equity exposure. On the background of new accord, this paper research in corporate exposure. This article is divided into six parts. The first part is about model history review: introduction of present internationally popular model, especially about Morton structural model. The second part is bout the option - GARCH method modeling: compared with history method, option-GARCH method improved B-S price formula regarding to standard deviation supposition. The Third part is the introduction of model validation. The Fourth part of the paper is model application and its significance. At last, point out the insufficiency in article research and the model future development direction.