Risk Measurement

These lecture notes focus on the measurement and management of concentration risk in credit portfolios. In the first part of these lecture notes we will give a brief introduction to credit risk modeling. We start with a review of well-known risk measures in Chapter 2, which we will frequently use in Parts II and III. In Chapter 3 we present the famous Merton model in some detail as most of the approaches in Part II are based on this framework. In Chapter 4 we presents the theoretical model underlying the Basel II risk weight functions, namely the Asymptotic Single Risk Factor model. Chapter 5 is devoted to the presentation of mixture models. As an example of this class of credit risk models, we introduce in Chapter 6 the CreditRisk⁺ model.