Credit Engineering for Bankers, 2nd Edition

Chapter 7 A Primer on Quantitative Risk Analysis

Chapter Outline

• A Brief History of Risk: What Exactly Is Risk? 130
• The Basics of Risk 133
• The Nature of Risk and Return 133
• Uncertainty versus Risk 134
• Risk Simulation Applications 136
• Running a Monte Carlo Simulation 138
  • Start a New Simulation Profile 138
  • Define Input Assumptions 140
  • Define Output Forecasts 143
  • Run Simulation 144
  • Interpret the Forecast Results 145
• Using Forecast Charts and Confidence Intervals 150
  • Some Tips 150
• Correlations and Precision Control 151
  • The Basics of Correlations 151
  • Applying Correlations in Risk Simulator 152
  • The Effects of Correlations in Monte Carlo Simulation 153
  • Precision and Error Control 153
• Exercise 1: Basic Simulation Model 157
  • Model Background ...