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COMMERCIAL CREDIT RISK AND THE RATING OF INDIVIDUAL CREDITS

Commercial credit risk is the largest and most elementary risk faced by many banks, and it is a major risk for many other kinds of financial institution and corporation as well. Assessing commercial credit risk is a complicated task because many uncertain elements are involved in determining both how likely it is that an event of default will happen and how costly default will turn out to be if it does occur. It’s therefore no surprise to find that there are many different approaches to the problem.

Some of the newest approaches employ equity market data to track the likelihood of default by public companies; others assess credit risk at the portfolio level using mathematical and ...

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