Applied Comparison of Selected Credit Risk Models

This paper describes Credit Metrics model and KMV model. A comparison of these models particularly with respect to their applicability on portfolio composed of conventional bank loans is the primary focus of this paper. The first part of the paper describes the theory of selected models. They do not appear to be very similar in their approaches and methodologies, but in fact solution techniques in these models are quite compatible. The following section characterizes the portfolio and any other input parameters we need to calculate. Follows a description of the calculation process and the calculated values of credit risk. In conclusion, the methods are compared.