CreditMetrics Model’s Correlation Improvement&the Application In The Credit Risk Measurement

After the occurrence of subprime crisis, more and more researchers paid much attention to the financial risk management. Credit risk is the main problem faced by commercial banks. Writer attempts to find an adequate quantitative credit risk model for China’s economic situation and to apply it to the credit risk management.The dissertation first introduces the development process of risk management theory, and then describes the CreditMetrics and KMV model. Through the analysis it’s found that we can apply CreditMetrics model to estimate the credit risk for small and medium enterprises.The second portion introduces the basic framework of Copula function, and then analyzes that Copula function can be used to improve the correlation of CreditMetrics model because of her flexibility and simplicity.In the third section, writer adjusts input parameters about transferring probability matrix and forward yield curve according to the actual development conditions of financial market in China. Then gives a example.In the end, the essay gives the conclusion some suggestions.