PORTFOLIO CREDIT RISK
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is portfolio credit risk?
Portfolio credit risk refers to the risk of loss arising from simultaneous defaults or credit quality deterioration across multiple obligors in a loan or investment portfolio, considering the correlation between individual credit exposures.
What is systematic risk in the context of portfolio credit risk?
Risk affecting all borrowers simultaneously due to common factors.
What is credit concentration risk in a banking portfolio?
Credit concentration risk is the risk arising from excessive exposure to a single borrower, sector, geography, or product, where adverse events affecting that concentrated area can cause disproportionate losses to the bank.
What is idiosyncratic risk in a credit portfolio?
Borrower-specific risk that can be diversified away.
How does the Herfindahl-Hirschman Index (HHI) measure portfolio concentration?
HHI is calculated as the sum of squared market share (or exposure share) of each borrower or segment; a higher HHI indicates greater concentration and hence higher concentration risk in the portfolio.
What is the Loss Given Default (LGD) parameter in credit risk?
Percentage of exposure lost when a borrower defaults.
What is default correlation in the context of portfolio credit risk?
Default correlation measures the tendency of multiple borrowers to default together; high positive correlation means defaults cluster during economic downturns, amplifying portfolio losses beyond what individual default probabilities would suggest.
What is Exposure at Default (EAD) in portfolio credit risk?
Total outstanding amount at risk when a borrower defaults.
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