Quantifying credit risk – A bank is a financial institution that provides credit for corporations and private individuals. A common type of loan issued to private individuals is the mortgage. The distinctive feature of a mortgage is the requirement that real estate (a house) is posted as collateral. Dutch banks have large mortgage portfolios on their books. But these are not without financial risks! The main risk is credit risk and is defined as the risk that a client cannot (fully) repay the loan. Regulatory institutions require that banks reserve capital to compensate for this risk. Quantitative models are used to determine how much reserve is needed. During the case you will build a so called “Loss-given-Liquidation” (LGL) model; this model predicts the loss that the bank stands to incur given that the liquidation of collateral is needed to repay the loan. The case will primarily test your modelling skills, but solid programming skills will for sure come in handy. Which functional specification will you use for your model? Which variables do you select and in what form? How to test model performance? You will be glad to hear that a library containing a wide range of useful functions will be available and that experienced consultants will guide you through the process.
This case will be presented in English and is open for Ba3 and higher.