Credit risk measurement has traditionally lacked the formal rigour applied to market risk. Its combination of specific and market issues, its relative size in comparison to other risks, as well as the perception that it could be managed at the transaction level, kept it as an accounting-oriented, experience-based discipline, notoriously suspicious of technological support.
Its very basis on projections of the value of the firm makes it a highly complex modelling issue.
Credit risk was traditionally defined as the possibility of loss due to non-performance by counterparty. This definition has been substantially widened, both at the transaction and obligor level, by the additional of loss due to credit migration, and at the portfolio level by the distinction between expected and unexpected portfolio risk.
However, the real issues of credit risk are the opportunities to take advantage of advances in technology and markets to achieve hitherto impossible levels of diversification and of risk-adjusted returns.
Riskworx provides assistance on credit exposure measurement and credit pricing, as well as on selection and implementation of the various components required to move towards credit portfolio management.