creditrisk
Credit risk is the risk of loss arising from a borrower or counterparty failing to meet contractual obligations, or from a deterioration in credit quality that reduces the value of financial assets. It affects loans, bonds, trade finance, derivatives, and other financial instruments, and can propagate through markets and institutions through interconnected exposures.
Exposures to credit risk include default risk, which occurs when a borrower misses payments or defaults; concentration
Measurement relies on quantitative concepts such as probability of default (PD), loss given default (LGD), and
Modeling approaches include structural models (for example, Merton-type models), reduced-form models, and credit scoring for individuals
Mitigation strategies include diversification, collateral, seniority, netting, credit enhancements, and, where appropriate, credit protection through instruments