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Alarm System for Credit Losses Impairment under IFRS 9

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Listed:
  • Pierre-Emmanuel Thérond

    (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

Abstract

The recent financial crisis has led the IASB to settle new reporting standards for financial instruments. The extended ability to measure some debt instruments at amortized cost is associated with a new impairment losses mechanism: Expected Credit Losses. In this paper, after a brief description of the principles elaborated by IASB for IFRS 9, we propose a methodology using credit default swaps (CDS for short) market prices in order to monitor significant changes in creditworthiness of financial instruments and subsequent credit losses impairment. This methodology is implemented in detail to a real world dataset. Numerical tests are drawn to assess the effectiveness of the procedure especially compared to changes of notation from credit rating agencies.

Suggested Citation

  • Pierre-Emmanuel Thérond, 2014. "Alarm System for Credit Losses Impairment under IFRS 9," Post-Print hal-01152097, HAL.
    • Handle: RePEc:hal:journl:hal-01152097
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    References listed on IDEAS

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    1. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
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