Measuring Default Correlations for Portfolio Credit Risk Assessment

Student: Pankova Olga

Supervisor: Marat Z. Kurbangaleev

Educational Programme: Economics (Bachelor)

Year of Graduation: 2019

Today there are many banks worldwide are faced with the problem of forecasting unexpected losses in order to calculate the amount of bank funds necessary to cover them. Previously, risk management did not pay attention to the correlation of defaults, which is one of the three main components for risk assessment along with PD and LGD. The main purpose of this paper is to compare the estimates of the correlation of defaults obtained using the Basel model and the Credit Metrics model. The hypothesis was confirmed that the Basel model underestimates unexpected losses.

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