Stable Non-Gaussian Credit Risk Model; The Cognity Approach
We present a new approach for integrated market and credit risk management for highly volatile financial markets. We will illustrate our approach on Cognity software for evaluation of credit risk. Cognity CreditRisk System comprises two models for credit risk evaluation for complex portfolios of instruments with inherent credit risk — Asset Value Approach (AV Model) and Stochastic Default Rate Model (SDR Model), both based on Stable Distributions. We shall summarize the main features of the current version of Cognity: (i) Risk Drivers Scenarios generation (ii) Estimation of dependece structure between risk drivers and modeling marginal distributions; (iii) Credit risk estimation under AV and SDR models.
KeywordsCredit Risk Credit Rating Market Risk Stable Distribution Default Probability
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