• Asia-Pacific Journal of Business
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• v.2 no.2
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• pp.61-78
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• 2011

Credit derivative is one kind of arrangement which allows one party to transfer, for a premium, the defined credit risk, computed with reference to a notional value, of a reference asset which may or may not owned by one or more other parties. Credit Default Swaps(CDS) have existed since the early 1990s, but its use has become increasingly popular over time. CDS is the fastest growing segment of the privately negotiated derivatives business as many firms depend on it to efficiently manage the financial market risks inherent in economic activities. The diversification function is especially important for active CDS market participants as banks. CDS banks can achieve their loan portfolio diversification which provides them with increased capacity to expand their lending.

• Journal of the Korean Data and Information Science Society
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• v.19 no.4
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• pp.1027-1036
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• 2008

Value at Risk(VaR) is a fundamental tool for managing market risks. It measures the worst loss to be expected of a portfolio over a given time horizon under normal market conditions at a given confidence level. Calculation of VaR frequently involves estimating the volatility of return processes and quantiles of standardized returns. In this paper, we introduced and applied the CreditMetrics model to estimate the credit VaR of Korean Property and Casuality insurers.

• East Asian mathematical journal
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• v.37 no.1
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• pp.79-85
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• 2021

In this paper, we investigate the valuation of vulnerable exchange option that has credit risk of option issuer. The reduced-form model is used to model credit risk. We assume that credit event is determined by the jump of the counting process with stochastic intensity, which follows the mean reverting process. We propose a simple approach to derive the closed-form pricing formula of vulnerable exchange option under the reduced-form model and provide the pricing formula as the standard normal cumulative function.

• Journal of the Korean Data and Information Science Society
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• v.24 no.1
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• pp.85-94
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• 2013

As the financial market becomes larger, the loss increases due to the failure of the credit risk managements from the poor management of the customer information or poor decision-making. Thus, the credit risk management also becomes more important and it is essential to develop a credit scoring model, which is a fundamental tool used to minimize the credit risk. Credit scoring models have been studied and developed only for binary target variables. In this paper, we consider other types of target variables such as ordinal multinomial data or longitudinal binary data and suggest credit scoring models. We then apply our developed models to real data and random data, and investigate their performance through Kolmogorov-Smirnov statistic.

• IE interfaces
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• v.20 no.4
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• pp.448-457
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• 2007

The small & micro business has the characteristics of both consumer credit risk and business credit risk. In predicting the bankruptcy for small-micro businesses, the problem is that in most cases, the financial data for evaluating business credit risks of small & micro businesses are not available. To alleviate such problem, we propose a bankruptcy prediction mechanism using the credit card sales information available, because most small businesses are member store of some credit card issuers, which is the main purpose of this study. In order to perform this study, we derive some variables and analyze the relationship between good and bad signs. We employ the new statistical learning technique, support vector machines (SVM) as a classifier. We use grid search technique to find out better parameter for SVM. The experimental result shows that credit card sales information could be a good substitute for the financial data for evaluating business credit risk in predicting the bankruptcy for small-micro businesses. In addition, we also find out that SVM performs best, when compared with other classifiers such as neural networks, CART, C5.0 multivariate discriminant analysis (MDA), and logistic regression.

• International Commerce and Information Review
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• v.15 no.2
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• pp.25-47
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• 2013

In China, the commercial bank credit financing is the most important external financing channel for SMEs. However, the lack of credit guarantee significantly deters commercial banks to finance SMEs. which may generate a negative impact on the trade activities of SME in China. In this paper we examine the risk of credit guarantee for SMEs financing and the factors affecting this risk through a VAR (Value-at-Risk) model. Our analysis shows that the scale of enterprises' impact on the VAR (risk of financing guarantee) is not much relevant. We also find that the certainty of financing for SMEs, such as the fixed asset ratio, has a significant and negative effect on the VAR of Chinese credit guarantee institutions. The product uniqueness is positively correlated with the VAR, and operation risk is also positively related to the credit risk of Chinese credit guarantee institutions.

• International conference on construction engineering and project management
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• 2015.10a
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• pp.122-126
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• 2015

Credit enhancement is absolutely essential for financing Independent Power Producer (IPP) projects in Asia particularly for countries whose sovereign credit rating is on non-investment grade and foreign investment is difficult to achieve. Due to nexus of agreements among varies parties in IPP project, it is hard to clearly visualize the roles of these agreements. Examples are: What credit enhancement factors are most influential to minimize the associated risks of IPP projects? Why are they powerful? What are their roles? Who are less powerful and what are the obstacles that causes them less powerful? A research is conducted to identify the credit enhancement factors for IPP projects in Asia. IPP professionals validated 27 out of 28 identified credit enhancement factors, and five factor groupings were made through factor analysis. Afterwards, network theory is applied to find the unanswered questions, which by graphical and mathematical representations show that the host government's credit enhancement, MDBs, ECAs and other parties' credit enhancement are prominent and of great importance to handle the associated risks of IPP projects in Asia

• Management & Information Systems Review
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• v.29 no.4
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• pp.207-223
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• 2010

One of the important prudential regulations is the capital regulation. The current domestic and international capital regulation sets the minimum capital requirement according to the size of risk which is the simple sum of market risk and credit risk. However the portfolio theory suggests that, due to the effect of diversification, the total risk is less than the summation of market and credit risk. This paper investigates and does empirical test to verify the diversification effect in measuring financial firm's integrated risk. We verify the diversification effect between the market risk and credit risk. This paper's contribution is to present the empirical evidence that, considering the relationship between market and credit risk, the integrated risk is less than sum of them. This implication is that the surplus capital may be used for the other purposes, therefore enhancing capital allocation efficiency in view of society as a whole.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.12
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• pp.627-633
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• 2020

The study attempts to analyze the impact of firm's risk on capital structure in the context of seasonal and non-seasonal businesses. We use two independent variables namely credit risk and systematic risk and one dependent variable to explore this connection. Sugar sector is taken as seasonal while the textile sector as non-seasonal businesses. The panel data of twenty-five firms from each sector are taken ranging for the period of 2012 to 2019 which has been retrieved from their annual reports for empirical analysis of the study. The results reveal the negative impact of credit risk on capital structure in both types of businesses. Increasing (decreasing) one point of credit risk causes a decrease (increase) leverage ratio by 0.27 points for seasonal while increasing (decreasing) one point of credit risk causes to decrease (increase) leverage by 0.15 points for non-seasonal businesses. Furthermore, the study shows positive impact of systematic risk on leverage ratio in non-seasonal business and no impact in seasonal business. Any increase (decrease) in the systematic risk causes an incline (decline) leverage ratio by 2.68 units for non-seasonal businesses. The study provides a guideline to managers for risk management in businesses. The research focusses on theoretical as well as managerial and policy implications on risk management in businesses.

• The Korean Journal of Applied Statistics
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• v.24 no.2
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• pp.253-268
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• 2011

In this paper, we estimate systematic risk from credit migration (or transition) matrices under "Asymptotic Single Risk Factor" model. We analyzed transition matrices issued by KR(Korea Ratings) and concluded that systematic risk implied on credit migration somewhat coincide with the real economic cycle. Especially, we found that systematic risk implied on credit migration is better than that implied on the default rate. We also emphasize how to conduct a stress test using systematic risk extracted from transition migration. We argue that the proposed method in this paper is better than the usual method that is only considered for the conditional probability of default(PD). We found that the expected loss critically increased when we explicitly consider the change of credit quality in a given portfolio, compared to the method considering only PD.