Measurements of credit risk

What will you learn?

Measuring credit quality is essential for creditors to price and manage credit risk. All else equal, the riskier the borrower, the higher the compensation required by a creditor to advance funds. This module presents the two main approaches utilized in financial markets to assess credit risk: fundamental credit analysis and model-driven scoring. Both approaches have benefits and shortcomings, and finance professionals often use different techniques to price and manage credit risk.

After taking this module, you will be able to identify the distance to a default and recoveries as the key measurements of credit risk, recognize the main credit models and credit rating scales from the three main credit rating agencies: S&P, Moody’s and Fitch. The last module of this online program is entirely dedicated to credit rating agencies and credit ratings, so this module provides a very short introduction.