Analysis Of Credit Risk Model And Monte Carlo Simulation

For the domestic commercial bank’s credit risk management weakness at present, there are four published and influential credit risk quantifying models, including KMV, CreditMetrics, Credit Risk"and Credit Portfolio View, the basic theory of which are analyzed here. According to the actual condition of our country, I have chosen CreditMetrics model and KMV model as the focus to make theoretical analysis. Then established mathematical model by Monte Carlo simulation method to make empirical analysis, and verified the validity of the two models in china. At the same time, based on the CreditMetrics model and KMV model, we made some modification, such as adding path simulation of loan credit rating transition to the calculation of the future value of loans in the CreditMetrics model. Compared to the previous model, the modified model can get continuous distribution of loan portfolio value at risk, and estimate the credit risk of loan portfolio more accurately. For the KMV model, we used the expected default distance instead of expected default rate to measure the credit risk of enterprise, and tried to distinguish whether a company is in a default condition or not with expected default distance variation rate.Finally, according to China’s commercial bank credit risk situation, the thesis systematically contrasted and analyzed the four major credit risk management models, separately elaborated ideas, hypothesis, merits and demerits of these models. The last but not the least, we probed into the necessity and feasibility of these models with commercial banks in China.