Profitability valuation of a credit loan portfolio per region, product type and branch. Uses credit VaR 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.
What you’ll 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)..
Course Content
- Introduction to Loss Given Default models –> 4 lectures • 19min.
- Simulation and results interpretation –> 3 lectures • 21min.
Requirements
- Basic knowledge of @RISK and Excel.
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.
