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A Generalized Framework for Credit Risk Portfolio Models

by H. Ugur Koyluoglu of Oliver, Wyman & Company, and
Andrew Hickman of CSFP Capital, Inc.

September 14, 1998

Abstract: Sophisticated new credit risk portfolio modeling techniques have been developed recently, holding the potential for substantial reform of credit risk management techniques and regulatory capital guidelines. This paper examines three such credit risk portfolio models, placing them within a single general framework and demonstrating that they are little different in either theory or results, provided that input parameters are harmonized. This result, that a strong consensus has emerged in the approach to modeling default risk, has significant implications for the acceptance of these new techniques amongst both end-users and regulators.

Published in an abridged version under the title: "Reconcilable Differences",  RISK, Vol. 11, No. 10, (October 1998), pp. 56-62.

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