Overview

Banks and other financial institutions rely heavily on quantitative analysis and models in nearly all aspects of their financial decision-making, including credit risk measurement and management.

This tutorial describes the key components of a credit model, the many uses of model outputs, and the broad types of credit model used by banks. It also examines the various stages of the credit model lifecycle and the challenges that banks and other financial institutions face to ensure models are reliable and robust. Finally, the tutorial outlines how model risk arises from the use of credit models, as well as the structures that should be in place to manage this risk.

Objective

On completion of this tutorial, you will be able to:
- Explain why banks use credit models to measure credit risk and the factors to be considered when using these models to make decisions
- Describe the various types of model risk that arise from the use of credit models and outline some of the ways in which this risk can be minimized

Content

Topic 1: Overview of Credit Models
Topic 2: Model Risk