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The Application Of The Method Of Var In Credit Risk Management In Commercial Banks

Posted on:2004-09-21Degree:MasterType:Thesis
Country:ChinaCandidate:H Y SunFull Text:PDF
GTID:2206360122975858Subject:Quantitative Economics
Abstract/Summary:PDF Full Text Request
Credit risk of bank loan which banks and management institution take much account of is the dominating risk which banking faced with. Our banks are now in a newly market and experiencing a reform, however, seen from the present condition of the commercial banks, their credit risk of bank loan is increasing. So it is important to enhance the credit risk management. How to manage the credit risk of commercial bank loan effectively is one of the principal matters that the supervisors concern.This paper is aimed at two central problems which exist in the credit risk management of the portfolio: first, if the loan defaults, how much loss there will be; second, how much reserve that the bank must prepare for the loss caused by risk, and do a deeply research on the related question and have a calculation in detail. The thesis uses the VaR method (Value-at-risk) to measure the credit risk of the portfolio, taking the loss of the portfolio as the criterion. The analysis is based on the default model and the Credit Metrics model respectively. VaR method weighed the risk, especially market risk and emerged all-sidedly with normal technology in order to meet the needs of present risk management. VaR method offers a simple and feasible method for measurement of the risk of the bank, With its science, practical that measures to the risk, the accurate and characteristic synthesized, it is welcome in the international finance including the supervising department. Developing into a kind of standard of risk management, it cannot merely be used in the risk management of the market, can also be applied to the quantitative management of credit risk. Concretely, take a portfolio of foreign bank loan for an example, the paper uses the VaR method to measure its credit risk empirically, and compare the results with each other. It can be found that the two models can measure the credit risk better and their numerical values of the VaR are relatively close, which means that at a certain confidence level, the portfolio's maximum losscalculated under the default model is familiar to the maximum loss in value resulted from the Credit Metrics model. However, under the default model the standard deviation of the loss of the loan is a bit more than the one which deviates from the average value of the loan under the Credit Metrics model; In addition, the conclusion also demonstrates that the two models have some differences in the measuring the capital reserve to some extent.As for the complicated cases, by means of the Mat Lab software, this paper make use of the Monte Carlo simulation method to calculate and develop the program of the related evolution of the VaR. A practical application shows that the corresponding developed computer program has good programming activity. In the end, the article discusses the questions existent in the models and the deficiency existing in the application of our commercial banks. Besides, the paper probes into the application of the VaR method to the credit risk management of our bank as regards how to use it better, and propose some suggestion with respect to the perfection of our credit grade system emphatically, and visualize a scheme for the building of database of the default rates as the model parameter.The structure of the paper is as follows:The preface explains the importance to the business bank of the credit risk management; Introduce the selected title motive of the thesis, focal point of work, study the purpose and main content.The first chapter is summarizing the models. It outlines the main idea of the VaR methodology; introduces the two kinds of risk models based on the VaR method: the default model and the Credit Metrics model, and give the course of their setting up.The second chapter is the application of the models, which is the center of the paper. In this part, it utilizes the Monte Carlo simulation to solve the problem and empirically analyzes and probes into the applications of the two models to the credit risk management of the commercial banks, and compares...
Keywords/Search Tags:credit risk of bank, VaR, default model, Credit Metrics model, default rate, Monte Carlo simulation
PDF Full Text Request
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