It is again time to summarize what we have seen so far.
In this lecture we have started analyzing the different tools we can use to assess/estimate the Probability of Default (PD) of a counterparty.
After giving an overview of what we are going to see in lecture 4, 5 and 6, we have focused our attention on credit ratings, making the distinction between external and internal ratings.
External ratings are those ratings produced by rating agencies, i.e. externally with respect to a bank or another financial institution. We have seen how ratings can be used to assess the PD of a counterparty, in the case in which ratings are available.
Internal ratings, conversely, are computed by banks, generally with proprietary models. They may be used when external ratings are not given, or simply because a bank “prefers to rely on its own strengths”. In this class of models, we have considered Altman’s Z-score.
In the next lecture, more advanced models will be considered.
Summary Module 4
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Subtitles (captions) in other languages than provided can be viewed at YouTube. Select your language in the CC-button of YouTube.
Here you can find the script.
The extra videos of this module are rather long, but definitely interesting.
You can watch them whenever you like and I hope you may enjoy them.
Warren Buffett on the Financial & Housing Crisis and Credit Rating Agencies (2010)
Annette Heuser: The 3 agencies with the power to make or break economies.
Introduction to Credit Risk Management by TU Delft OpenCourseWare is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Based on a work at https://ocw.tudelft.nl/courses/introduction-credit-risk-management/.