CREDIT + SCIENCE. Credit risk is the risk of
loss due to a debtor's non-payment of a loan or other line of credit (either the
principal or interest (coupon) or both). The default events include a delay in
repayments, restructuring of borrower repayments, and bankruptcy. There are
three primary types of credit risk;
Default Risk is the chance the issuer will fail to meet its obligations.
Credit Spread Risk is the chance the spread between the risky bond and
risk-free securities will vary after purchase.
Downgrade Risk is the chance a rating agency will lower its rating on the
These types of Credit Risk can be modeled using PD, LGD and EAD models, and hedged most consistently using option
contracts. Credience offers Training, Consulting and Software products that cover
Credit Risk. In particular is the Credience Credit Risk Engine (C-CRE™).