MFE1106 — Credit Risk Measurement and Management 1

Credits: 3
Self-study hours: 90
Showing intake: K68-2026

Course description

Credit Risk Measurement and Management 1 is a specialized course designed for 3rd-year students majoring in Quantitative Risk Management or Actuarial Science. The primary objective of this course is to enhance students' comprehension of credit risk management, with particular emphasis on structured finance and credit products such as collateralized debt obligations and credit derivatives. The course encompasses a wide range of topics within Credit Risk Measurement and Management, including credit analysis, quantitative methodologies for assessing default risk, expected and unexpected loss calculations, Credit Value at Risk (CVaR), counterparty risk, and credit derivatives.

Course requirements

Requirements for Final Examination

Attendance score must be at least 5 (according to University regulations).

See Appendix 2, Rubric 1 for attendance evaluation.

Requirements for Class Attendance

Students are expected to attend at least 80% of all scheduled classes.

Any absence must be properly documented (e.g., medical certificate) and approved by the instructor.

Requirements for In-class Behaviour

Students are expected to arrive on time and remain until the end of the class.

Mobile phones and electronic devices should only be used for learning purposes.

Respectful and professional behaviour towards peers and instructors is mandator

Teaching plan

Week 1

Greeting and course introduction, its logic, its role and position in the program

References

Syllabus

Activities

Lecturer introduces the course Lecturer sets learning requirements Lecturer instructs students to read documents Lecturer instructs students to find documents Lecturer instructs to group work Lecturer divides students into working groups

Assessment

Level of participation Level of interaction Quality of answers

Week 1

Chapter 1. The Credit Decision and Credit Analyst The Credit Decision Credit Analyst

References

Credit Risk Measurement and Management book, garp.org/frm, 2024.

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Student have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 3

Chapter 2. Measuring Credit Risk The mean and standard deviation of credit losses The gaussian copula model 2.3. Credit metrics

References

Credit Risk Measurement and Management book, garp.org/frm, 2024.

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Students have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 4

Chapter 3. Capital Structure in Banks 3.1. Steps to Derive Economic Capital for Credit Risk 3.2. Problems with the Quantification of Credit Risk

References

Credit Risk Measurement and Management book, garp.org/frm, 2024.

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Students have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 5

Chapter 4. Rating Assignment Methodologies 4.1. Experts-based approaches 4.2. Statistical-based models 4.3. Heuristic and numerical approaches

References

Credit Risk Measurement and Management book, garp.org/frm, 2024. Bart Baesens, Daniel Rösch,Harald Scheule (2016), Credit Risk Analytics: Measurement Techniques, Applications, and Examples in SAS, Wiley.

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Student have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 7

Chapter 5. Probabilities of Default (PD): Discrete-Time Hazard Models 5.1. Default Events 5.2. Conditional and Unconditional Default 5.3. Discrete-time hazard models 5.4. Fitting and forecasting, Validation

References

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Student have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 8

Present group exercise.

References

Credit Risk Measurement and Management book, garp.org/frm, 2024.

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Students have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 10

Chapter 6. Probabilities of Default: Continuous-Time Hazard Models 6.1. Censoring 6.2. Life tables 6.3. Cox proportional hazards models 6.4. Extension: mixture cure modeling

References

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Students have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 12

Chapter 7. Credit Scoring and Retail Credit Risk Management 7.1. The nature of retail credit risk 7.2. What kind of credit 7.3. Scoring models are there? 7.4. Cutoff scores and loss rates 7.5. Measuring and monitoring the performance of a Scorecard 7.6. From default risk to Customer value 7.7. The Basel regulatory Approach

References

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Students have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 13

Chapter 8. Credit Risks and Credit Derivatives 8.1. Credit risks as options. 8.2. Beyond the merton model 8.3. Credit risk models. 8.4. Credit derivatives. 8.5. Credit risks of derivative

References

Credit Risk Measurement and Management book, garp.org/frm, 2024.

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Students have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 14

Chapter 9. Spread Risk and Default Intensity Models 9.1. Credit spreads 9.2. Default curve analytics 9.3. Risk-neutral estimates of default probabilities 9.4. Spread risk Individual tests

References

Credit Risk Measurement and Management book, garp.org/frm, 2024.

Activities

Students have to read the related contents before coming to class Lecturer euips students with theorical information Students have to discuss the circumstances and questions asked by the lecturer

Assessment

Level of participation Level of interaction Quality of in-class answers and exams

Week 15

Complete group exercise/ Midterm test Analysis report of marketing activities in a specific unit

Activities

Groups report and answer questions Lecturer and class members comments

Assessment

Assessment sheet with the following criterium: (i) Content; (ii) ; (iii) Attractive and persuasive presentation; (iv) Degree of cooperation in answering questions; (v) Presentation time

Week 1

Greeting and course introduction, its logic, its role and position in the program

References

Syllabus

Activities

Groups submit reports Lecturer evaluates reports

Assessment

Assessment sheet with the following criterium: (i) Content; (ii); (iii) Time; (iv) Cross-evaluation

Final exam

Activities

Students take exams according to givem schedule

Assessment

According to the exam requirement

Learning resources

1. Course Books
Credit Risk Measurement and Management book, garp.org/frm, 2025
2. References
Standard lecture notes/slides 2025
3. Other resources available at the University Library
https://www.garp.org/frm/study-materials
https://www.bis.org/
Valuation and risk model book, garp.org/frm, 2024
Operational Risk and Resiliency book, garp.org/frm, 2024
Jonathan Golin and Philippe Delhaise, The Bank Credit Analysis Handbook, 2nd Edition (Hoboken, NJ: John Wiley & Sons, 2013)
Credit Risk Analytics: Measurement Techniques — Bart Baesens, Daniel Rösch, Harald Scheule, Applications, 2016