Create an account
JPM's Risk Metrics Model
How much can the FI potentially lose should market conditions move adversely
Qualitative Models Default risk
-Leverage or capital structure (D/E) threshold beyond which probability of default increases
-Volatility of earnings (stable v.s. high tech)
Reputation, long term relationship, implicit contracts
Assume risk neutrality
the FI would be indifferent between the corporate and the treasury of same maturity discount bonds
Risk adjusted return on capital, RAROC is the ratio of loan income to loan risk. A loan is approved if RAROC exceeds a FI estabilished benchmark rate (cost of capital, ROE)
Measures a loans probability of being upgraded, down graded or defaulting over a period of time. Historic data is used, and can be used as a benchmark against credit migration patterns of any new pool of loans can be compared.
Please allow access to your computer’s microphone to use Voice Recording.
Having trouble? Click here for help.
We can’t access your microphone!
Click the icon above to update your browser permissions and try again
Reload the page to try again!Reload
Press Cmd-0 to reset your zoom
Press Ctrl-0 to reset your zoom
It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.
Please upgrade Flash or install Chrome
to use Voice Recording.
For more help, see our troubleshooting page.
Your microphone is muted
For help fixing this issue, see this FAQ.
Star this term
You can study starred terms together