Developing, Validating and Using Internal Ratings Methodologies and Case Studies

This book looks at credit risk management, key concepts, measures and tools and focuses on possible approaches to rating, analysing and comparing expert judgment-based approaches, statistical based models and numerical tools. Two case studies are presented which focus on model building and validation. Model building is described in detail, and seeks to clarify the main issues concerned with model building, how to use statistical tools and interpret results. Univariate, bivariate and multivariate stages of model building are discussed outlining the need to merge the knowledge of quant people with that of bank practitioners.The validation case study looks a document for the internal validation unit, summarizing the process of building a shadow rating for assessing financial institutions creditworthiness is presented and analyzed.Conclusions are drawn on the use of policies in order to gain leverage on potentialities and managing limits of statistical based ratings.

Giacomo De Laurentis, Full Professor of Banking and Finance, Bocconi University. Director of Executive Education Open Programs Division of SDA Bocconi School of Management, Italy.

Renato Maino, Professor at Bocconi University and Turin University, Consultant on Risk Management issues for commercial banks, asset Management companies and corporate, Italy.

Luca Molteni, Assistant Professor of Statistics, Bocconi University, CEO of Target Research, Italy.