Credit Risk Analysis:development and application of a self-constructed internal rating system based on classical approaches

The purpose of credit analysis is to assess the risk grade associated with a creditor who might not be able to fulfill a credit obligation. Banks, financial institutions, or other counterparties providing credit expect to be reimbursed in full and on time while earning a decent return on investment that should reflect the risk assumed. This theory can be applied to all forms of credit, from investments in debt instruments to loans, derivative contracts, and letters of credit. Credit risk measurement and management has been evolving rapidly in recent years in response to several key factors, such as the upheaval of the global economy. That situation has implied an increasing focus on credit risk, its measurement, and its management. The aim of this book is thus to review the classical approaches of credit risk measurement and management, to analyze the new trends and developments in the area and finally to develop a self-constructed internal rating system based on classical approaches and new developments. The three methods used will then be compared and discussed with practical examples on four soft commodities trading companies.