Credit Risk Modeling

Credit risk modeling is a method used by financial institutions to assess the likelihood that a borrower will default on a loan or credit obligation. By analyzing historical data, economic conditions, and borrower characteristics, models predict the probability of default and potential financial losses. This helps banks and lenders make informed decisions about lending, pricing loans, and managing risks. In financial engineering, these models are crucial for developing strategies to mitigate risks and ensure financial stability. Essentially, credit risk modeling helps institutions safeguard their assets while promoting responsible lending practices.