JP MORGANS CREDITMETRICS

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Submitted by:Vishal Gote(207) Rohit Pagare(241) Zoher Ratlami(260)

4/23/12

INTRODUCTION
What is CreditMetrics?

CreditMetrics is the first readily available portfolio model for evaluating credit risk. CreditMetrics approach enables a co. to consolidate credit risk across its entire organization, and provides a statement of value-at-risk (VaR) due to credit caused by upgrades, downgrades, and defaults. 4/23/12

The

CreditMetrics, published as a technical document by JP Morgan in year 1997, and now further developed by the RiskMetrics Group, LLC, who also markets a software implementation, CreditManager,

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AIM
Create

a benchmark for CRM

Promote

transparency and better risk management tools a regulatory capital

Encourage

framework
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NEED
CONCENTRATION RISK

RISK

BASED LIMIT SETTING

RATIONAL

INVESTMENT DECISIONS AND RISK MITIGATING ACTIONS ECONOMIC AND REGULATORY CAPITAL ALLOCATION TO MARKET
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RISK-BASED

RESPONDING

INNOVATION

3 Components
A

METHODOLOGY DATA SET

SOFTWARE PACKAGE(CREDIT MANAGERTM)

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FORMULA

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RESULTS TO BE OBTAINED
STATISTICS WHICH QUANTIFIES THE

PORTFOLIOS ABSOLUTE RISK LEVEL

STANDARD DEVIATION OF VALUE CHANGES

WORST CASE LOSS AT A GIVEN LEVEL OF

CONFIDENCE

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ONE YEAR TRANSITION METRICS

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METHODOLOGY
STEP

1: THE STATES OF THE WORLD REVALUATION BUILDING CORRELATIONS

STEP2:

STEP3:

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CREDIT RISK MEASURES

STANDARD

DEVIATION LEVELS

PERCENTILE

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THANK YOU

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