Intelligent Integrated Systems of Automated Design Laboratory (IISAD)

TRANSPARENCY OF METHODS FOR ASSESSMENT OF CREDIT RISKS AND RATINGS
 (In Russian)

E.D. Solojentsev, N.V. Stepanova, V.V. Karassev



Transparency is a property of methodology to show
the phenomenon not as a whole only but in details also
Authors

ISBN 5-288-03723-Õ
E.D. Solojentsev, N.V. Stepanova, V.V. Karassev
Transparency of Methods for Assessment of Credit Risks and Ratings. - SPb.: St.Petersburg University Press, 2005. - 197 pages.

The ðrîblem of transparency of methods fîr estimation of credit risk for natural and juridical persons is formulated and its solution, based îï logical and probabilistic (LP) approach, is suggested. We study Basel II Regulations about minimum capital requirements and describe the difficulties of their implementation due to the absence of effective transparent methodologies for estimation of credit risks. The LP-theory of credit risk with groups of incompatible events is stated. We demonstrate advantages of the LP-theory of risk in transparency, àññuràñó and robustness. LP-theory (LP- VaR) of the portfolio, using arbitrary distributions of dividend yields and providing transparency of analysis and risk forecasting, is stated. We conclude that Russian banks have to found their own rating agency îï the basis of impartial and well-grounded scientific LP-theory of credit risk. This book is intended for specialists in the àråà of risk management in banking and business, for students and postgraduates of financial universities.
Figures: 25, Tables: 38, Literature: 79.



CONTENTS

Introduction

Chapter 1. Requirements upon credit risk estimation methods
1.1. Transparency of credit risk estimation methods
1.2. Accuracy and robustness of credit risk estimation methods
1.3. Individualism of banks and their risk models
1.4. Postulates and models of credit risks
1.5. Bank management under risk criterion
1.6. Conclusions

Chapter 2. Transparency of credit scoring methods
2.1. Essence of credit scoring methods
2.2. History of credit scoring methods
2.3. Future trends of credit scoring in Russia
2.4. Credit scoring methods
2.5. Conclusions

Chapter 3. Management of banking risks by Basel Regulations
3.1. The concepts of "Basel II" Regulations
3.2. Credit risk estimation
3.3. Minimum Capital Requirements
3.4. Methods of capital adequacy estimation in Russian banking
3.5. Conclusions

Chapter 4. Logica1 and probabilistic theory of credit risk for natural persons
4.1. Data presentation
4.2. Basic equations
4.3. Risk measures and price for the risk
4.4. Training of LP risk model with use of statistical data
4.5. Analysis of credit risk and credit activity of bank
4.6. Transparency of the method of credit risk
4.7. Transparency of results of estimation and analysis of credit risk
4.8. Comparison of LP methods of credit risk estimation with other methods
4.9. Conclusions

Chapter 5. Logical and probabilistic theory of credit risk for juridical persons
5.1. Credit risk methods to western market
5.2. Credit risk methods according to Russian market
5.3. LP model of credit risk according to Russian market
5.4. Conclusions

Chapter 6. Transparency of investment portfolio management methods
6.1. Optimal portfolio selection under VaR criterion
6.2. Logical and probabilistic portfolio theory LP- VaR
6.3. Portfolio with independent yields of stocks
6.4. Portfolio with dependent yields of stocks
6.5. Portfolio with yields of stocks, which depending on external factor
6.6. Comparison of portfolio modeling methods by LP- VaR
6.7. Examples of optimization and analysis of portfolio by logic and probabilistic theory
6.8. Effectiveness of portfolio management by LP- VaR
6.9. Conclusions

Chapter 7. Transparency of methods for estimation of credit ratings
7.1. Problem of estimation of credit ratings
7.2. Estimation of functioning quality of company in business
7.3. LP-model for estimation of quality and ratings
7.4. Comparison of arithmetical and logical ratings
7.5. Comparison of credit risks and ratings
7.6. Conclusions

Chapter 8. Transparency of credit ratings methods
8.1. Current problem
8.2. Significance of credit rating agencies in business
8.3. Aims of project "Code of Standard Practices" for participants in market
8.4. Contents of projects
8.5. Regulatory recommendations
8.6. Rating Agency recommendations
8.7. Issuer recommendations
8.8. Conclusions

Chapter 9. Transparency of Software for estimation of credit ratings and risks
9.1. Analysis of situation
9.2. Closed source software concept
9.3. Îðån source software concept
9.4. Conclusions

Conclusion

List of literature


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Last updated: July, 18, 2005