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A survey of cyclical effects in credit risk measurement model

Author

Listed:
  • Linda Allen

    (Zicklin School of Business, Baruch College, CUNY)

  • Anthony Saunders

    (New York University - Leonard N. Stern School of Business)

Abstract

We survey both academic and proprietary models to examine how macroeconomic and systematic risk effects are incorporated into measures of credit risk exposure. Many models consider the correlation between the probability of default (PD) and cyclical factors. Few models adjust loss rates (loss given default) to reflect cyclical effects. We find that the possibility of systematic correlation between PD and LGD is also neglected in currently available models.

Suggested Citation

  • Linda Allen & Anthony Saunders, 2003. "A survey of cyclical effects in credit risk measurement model," BIS Working Papers 126, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:126
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    References listed on IDEAS

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