Simulation Approach in Credit Risk Models

This article focuses on systematic approach in credit risk modeling. The simulation approach usually generates a large number of possible portfolio losses - i.e. scenarios. We present several basic models and methods. The main focus is on the KMV company model. We present its basics and compare its structure to other successful models like CreditMetrics. Credit risk quantification is gaining importance nowadays and therefore we shows certain advantages and disadvantages of this approach. Enterprises in global economy should take into account importance of input and output data. They should adapt their model choice to the size and take into account also relevance of selected model for their industry.