How to Model Forward-Looking Credit Risk

The problems with credit loss-projection methodologies that rely on historical data have been illuminated over the past three years. Regression-based credit risk models have, indeed, been failing, thanks largely to volatile market conditions, ranging from the COVID-19 pandemic to rising geopolitical risk to inflation and increasing interest rates,

Complicating matters further, at the outset of 2023, all major research publications are predicting tough economic times ahead. Risk professionals, of course, can’t wait until markets stabilize to accumulate enough new data for loss estimation. Instead, in a world where unpredictability is permanent, one must identify tail risks with realistic probability.

Lees verder >>