Credit Risk Modeling

2025/2026

Academic Year

ENG

Instruction in English

Delivered at:

Department of Finance

Course type:

Elective course

When:

2 year, 1 module

Instructor

Volkov, Vladimir

Course Syllabus

Abstract

The basic approaches of credit risk management are introduced. Starting from the critical concepts of expected losses and probability of default a link to different methods of credit ratings is discussed. A particular attention is paid to understanding the underlying factors of correlation between defaults of companies manifested in the global correlation model. Different methods of identifying these factors are discussed. Furthermore, asset value models are introduced for hedging default risk. CreditRisk+ helps to quantify the potential risk of defaults and resulting losses in terms of exposure in a given portfolio by incorporating a term structure of default rates. Due to the weaknesses of the VaR concept a different axiomatic approach to capital allocation is discussed. Finally, credit derivatives are discussed as instruments that help banks, financial institutions, and debt security investors to manage their credit-sensitive investments.

Learning Objectives

• Choose credit modeling methods adequately corresponding to the objectives of a financial industry
• Collect, store, process and analyse credit data
• Conduct empirical research in finance and management using modern analytic software tools for credit risk analysis

Expected Learning Outcomes

• Understand the main components of the Balance sheet and the PL of a commercial bank
• Understand the main components of banking products and operations (granting loans, attracting deposits, trading of financial instruments, hedging banking and trading book, etc.)
• Understand basic quantitative and qualitative instruments used in the management of Credit, Market, Operational, Liquidity, Interest rate, FX and ESG risks

Course Contents

• Week 1 – Introduction
• Foundations of risk management
• Week 2 – Correlated defaults
• Week 3 – Asset Value Models
• Week 4 – The CreditRisk+ Model.
• Week 5 – Capital allocation.
• Week 6 – Term structure of Default Probability
• Week 7 – Credit derivatives.
• Week 8 – Collateralized debt.

Assessment Elements

• Exam
• Business case

Interim Assessment

• 2025/2026 1st module
  0.3 * Business case + 0.7 * Exam

Bibliography

Recommended Core Bibliography

• Financial Risk Management, Eales, B. A., 1995
• Основы риск-менеджмента : учебное пособие, Кулик, В. В., 2016

Recommended Additional Bibliography

• Advanced Strategies in Financial Risk Management, , 1993
• Elements of financial risk management, Christoffersen, P. F., 2012

Authors

• Volkov Vladimir Vladimirovich
• SOLOVEVA EKATERINA EVGENEVNA
• BRODSKAYA NATALYA NIKOLAEVNA