Newcastle University

Aims

This module aims to provide students with a detailed understanding of the econometric methods that can be used to evaluate and manage credit default risk. The module assumes no previous experience of modelling credit default risk.

Original Summary:
Evaluating the risk that a borrower will default on loan payments (i.e. credit default risk) is an important task for retail banks, central banks and international financial agencies such as the IMF. This module will cover the main econometric techniques that can be used to evaluate, manage, and forecast credit default risk. Empirical applications at the individual, company and country level will be employed to illustrate the techniques in action.

Outline Of Syllabus

1. Introduction to credit risk modelling.
2. Types of credit available, measures of risk, level of analysis (individual, company, country).
3. Conceptual approaches to the valuation of default risk.
4. Assessing default risk through structural models.
5. Assessing default risk through reduced form models.
6. Propensity modelling and credit scoring techniques.
7. Regression models.
7. Bivariate Logit and Probit models, Hazard models.
8. Multivariate Logit and Probit models.

Teaching Rationale And Relationship

• Lectures provide the basic structure of the methods and theories that are introduced and an overview of the current issues.
• Seminars provide an opportunity to enhance understanding of the empirical methods and the theoretical aspects of the module.

Assessment Rationale And Relationship

The examination tests understanding of how econometrics can be used to model credit risk.