Credit risk and RAROC

Credit risk and RAROC

This banking example shows how to measure profitability for a commercial bank portfolio of credit assets. In the credit business, losses of interest and principal occur all the time - there are always some borrowers that default on their obligations. The losses that are actually experienced in a particular year vary from year to year, depending on the number and severity of default events.

Using a Basel II-based approach we propose a Loss-Given-Default type of model inserting Monte Carlo simulation in order to incorporate probabilities that allow calculation of unexpected losses.

Profitability valuation of a credit loan portfolio per region, product type and branch. Uses credit VaR and RAROC

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What you will learn

• Profitability valuation of a credit loan portfolio per region, product type and branch. Uses credit Value at Risk and RAROC (Risk Adjusted Return on Capital).

Rating: 4.1

Level: Intermediate Level

Duration: 40 mins

Instructor: Fernando Hernandez