The University of Southampton
Courses

MANG6169 Credit Risk Model and Basel Accord

Module Overview

The module will develop understanding of the fundamentals of financial risk assessment and the way models of such risks underpin banking regulations. It will make the connections between Inland Rating Based models and credit scoring and corporate rating.

Aims and Objectives

Module Aims

To cover the fundamentals of financial risk assessment in the context of the Basel Accords, studying concepts and models that are the basis of modern risk supervision and management. The module will cover the concepts of financial risk management, the roles of the bank and the supervisor in effective risk management at system-wide and operational level, the key concepts and measures that define expected and unexpected loss coverage, and an overview of the tools and methodologies that are used to obtain them.

Learning Outcomes

Knowledge and Understanding

Having successfully completed this module, you will be able to demonstrate knowledge and understanding of:

  • Key concepts in credit risk assessment, including internal ratings based modelling, recovery risk modelling, validation and stress testing;
  • The principles of the Basel Capital Accord.
Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

  • Demonstrate competence in quantitative analysis, model building, problem solving and the use of statistical packages.
Transferable and Generic Skills

Having successfully completed this module you will be able to:

  • Demonstrate an ability to present your work through effective oral and written Presentations;
  • Manage IT skills related to the subject.

Syllabus

Session 1: Credit risk modelling, economic and regulatory capital. Review of corporate credit risk models, relationship with internal ratings based modelling, structural models, reduced form models. Review of consumer credit modelling Session 2: Basel New Capital Accord and the risks. Models for estimating probability of default in consumer, corporate and sovereign lending. Relationship with consumer application and behavioural scoring and input on choice of optimal portfolio. Market and Operational Risk. Session 3: Loss Given Default models, Exposure at Default models, validation and verification of parameter estimation. Stress testing why and how

Learning and Teaching

Teaching and learning methods

Lectures, tutorial, workshops.

TypeHours
Teaching12
Independent Study63
Total study time75

Resources & Reading list

Altman, Resti and Sironi (2005). Recovery Risk. 

Thomas L.C (2008). Consumer Credit Models; Pricing, Profit and Portfolios. 

Ong, M.K (2005). The Basel Handbook. 

Saunders and Allen (2002). Credit Risk Measurement. 

Engelmann, B., Rauhmeier R (2006). The Basel II Risk Parameters. 

Gup B.E (2004). The New Basel capital Accord. 

Shimko (2000). Credit Risk, Models and Management. 

Assessment

Formative

Questions and answers

Summative

MethodPercentage contribution
Examination  (2 hours) 70%
Project  ( words) 30%

Repeat

MethodPercentage contribution
Examination  (2 hours) 100%

Referral

MethodPercentage contribution
Examination  (2 hours) 100%
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