FRM - Vasicek Model to Measure Credit Risk

Vasicek model is a popular model that's used to measure Credit Risk as part of the Internal Ratings Based (IRB) approach. The model is proposed by banking regulators and also used by banks to measure the economic capital as well.

[@natashabastien678]

I don't often comment on KZbin, but I really appreciate your ability to teach those concepts event to non-finance majors. Thanks.

[@wailelhag9856]

Thanks for the video. very well put and clearly explained and simplified. Regards

[@geminipatel2875]

Very clearly explained

[@MuhammadAamir-kr6tv]

Nice explanation. Great work.

[@darshitpatel7903]

very well explained thanks !

[@elenabodna5719]

Very nice! Thanks.

[@vimalrajsep]

Shouldn't the - in the formula be replaced by + when we use N-1(.999)

[@andreapasqualucci2167]

Brilliant

[@HiPh0Plover1]

what do you think of the model in terms of results to the goal which is to reduce the risk of financial crisis caused by banks ? the model assumptions are too strong so basically regulators consider all banks loans portfolios are the same which is def not the case

[@frmexam]

It seems like the model was designed to make it practical to perform the computation. Imagine a bank that has 1 million loans, it will be quite difficult to introduce individual correlations and probability of defaults and also they will change time to time. Another point to note is that when there is an economic downturn most loans are strongly correlated and will also have the same default probability ( more or less).

[@rjbriceno]

if you have a portfolio of loans then you need to apply the formula (WCDR-PD)*LGD*EAD loan by loan and then aggregate? sum((42%-1%)*LGDi*EADi))

[@frmexam]

Hi Rodrigo - Yes, basically for each loan LGD x EAD will give you the amount you will lose if a default occurs. Also we will assume all loans have the same PD.

[@anything4899]

how vasicek is used for ECL provision under IFRS 9 is there any difference in the way assumptions are taken

[@saptashwachatterjee6875]

Can you provide the link for Gaussian copula model video

[@khaliq065]

Hi sir We want to perform the financial analysis on debts of the company What will be required data from company according to this model ?????

[@accountingexperience760]

EAD - exposure at default ( basically your loan size to keep it simple) LGD- Loss given default - you can assume 100% of the loan will be lost if there was a default to keep things simple. PD - probability of default - this depends on the type of firm and the loan portfolio. Usually if you have some historical data then you can come up with a probability of default.

[@sidsingh5168]

Hi nice videos on credit risk, if as a beginner could you please tell me how to get entire credit risk videos means step by step process? please

[@frmexam]

Ill upload some videos on introduction to Credit Risk and will write a detail post on working on a Credit Risk team shortly. will keep you posted.

[@Saywhatohno]

Can we use this model for credit risk of a private company?

[@asharma1775]

Sound system is bad . But content wise great video

[@aminurrahmanchowdhury1964]

Sound system is very poor.

[@ieddinutube]

there should be a mistake here, can not have 1% with 99.9 %. The first one should be N-1(0.1%)

[@frmexam]

The worst case default rate (WCDR) of 99.9% does not mean the PD is 0.1%. The PD (probability of default) can take any value. The economic factor F is linked to the WCDR.