An Introduction to Credit Risk Management from edX

Imagine that you are a bank and a main part of your daily business is to lend money. Unfortunately, lending money is a risky business - there is no 100% guarantee that you will get all your money back. If the borrower defaults, you will face losses in your portfolio. Or, in a bit less extreme scenario, if the credit quality of your counterparty deteriorates according to some rating system, the loan will become more risky. These are typical situations in which credit risk manifests itself.

According to the Basel Accords, a global regulation framework for financial institutions, credit risk is one of the three fundamental risks a bank or any other regulated financial institution has to face when operating in the markets (the two other risks being market risk and operational risk). As the 2008 financial crisis has shown us, a correct understanding of credit risk and the ability to manage it are fundamental in today’s world.

This course offers you an introduction to credit risk modelling and hedging. We will approach credit risk from the point of view of banks, but most of the tools and models we will overview can be beneficial at the corporate level as well.

At the end of the course, you will be able to understand and correctly use the basic tools of credit risk management, both from a theoretical and, most of all, a practical point of view. For each methodology, we will analyse its strengths as well as its weaknesses. We will do this in a rigorous way, but also with fun: there is no need to be boring.

What's inside

Learning objectives

The definition and the implications of credit risk for banks and other financial institutions
The most recent risk regulations for banks: basel ii and basel iii
How to critically use basic measures of risk like value-at-risk and expected shortfall: computation and interpretation
The definition and the use of credit ratings

How to define the probability of default of a counterparty
Important credit risk models like merton’s model, the moody’s kmv model, creditmetrics™ and credit risk plus™
The basics of credit default swaps (cds)
What stress-testing is and why it is useful

The definition and the implications of credit risk for banks and other financial institutions
The most recent risk regulations for banks: basel ii and basel iii
How to critically use basic measures of risk like value-at-risk and expected shortfall: computation and interpretation
The definition and the use of credit ratings
How to define the probability of default of a counterparty
Important credit risk models like merton’s model, the moody’s kmv model, creditmetrics™ and credit risk plus™
The basics of credit default swaps (cds)
What stress-testing is and why it is useful

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Core audience is anyone who wants to learn about credit risks as they relate to banks and other lending institutions

In-depth coverage of credit risk models such as Merton's, Moody's KMV, CreditMetrics™, and Credit Risk Plus™

Provides fundamental understanding of Basel Accords, used in risk regulations for banks

Taught by experts in credit risk Pasquale Cirillo and Fang Fang

May require prior knowledge in finance and banking concepts

Reviews summary

Credit risk management fundamentally explained

According to students, this course gives a solid introduction to the fundamental concepts of credit risk management with well-structured video lectures. It covers the basics such as the Basel accords, credit ratings, and even provides an introductory course on R programming. While the difficulty level is not made clear, learners say the course is best suited for beginners in the field. Some advice from past learners is to skip the math and programming sections unless needed.

Bonus introduction to the R programming language.

"Also you will run Introduction to R."

"My advice is to skip mathematical and programming parts if you don't want to get into that and you will still find this course very useful in understanding at least partially the framework of credit risk management."

Provides a systematic overview of credit risk fundamentals.

"Cool intro to Basel accords and Credit rating and Management."

"It seems good and I really like to study in depth for my future improvement."

Unclear course difficulty, but recommended for beginners

"However you should be patience while taking the class."

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in An Introduction to Credit Risk Management with these activities:

Review your notes from a previous course on probability and statistics

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Reviewing your notes will help you refresh your knowledge of probability and statistics, which are essential for understanding credit risk.

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Go over your notes from a previous course on probability and statistics.

Create a binder or folder to organize your course materials

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Organizing your materials will help you stay on top of the course material and make it easier to study for exams.

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Create a binder or folder for your course materials.
File your notes, handouts, and assignments in the binder or folder.

Participate in a study group with other students in the course

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Participating in a study group will allow you to learn from and collaborate with other students.

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Find a group of students who are willing to meet regularly.
Discuss the course material and work on practice problems together.

Six other activities

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Follow a tutorial on how to use Python for credit risk analysis

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Learning how to use Python for credit risk analysis will enhance your technical skills and make you more valuable in the job market.

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Find a reputable tutorial on how to use Python for credit risk analysis.
Follow the tutorial step-by-step and complete all of the exercises.
Apply what you have learned to a real-world dataset.

Practice credit risk computations

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Reinforce your understanding of the basic principles of credit risk quantification by solving practice problems.

Browse courses on Credit Risk

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Review the basics of credit risk measurement
Solve practice problems on credit risk computations, such as Value-at-Risk and Expected Shortfall
Compare your results to the provided solutions

Read and summarize The Handbook of Credit Risk Management

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Reviewing this book will provide you with a comprehensive understanding of credit risk management concepts and techniques.

View Loose-Leaf for Essentials of Investments on Amazon

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Read the first chapter and familiarize yourself with the basics of credit risk management.
Review the chapter on credit scoring and rating systems.
Summarize the key concepts and techniques discussed in the book in your own words.

Calculate CreditMetrics™ risk measures

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Practicing these exercises will help you develop a strong understanding of how to use CreditMetrics™ to measure credit risk.

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Download the CreditMetrics™ User Manual and familiarize yourself with the methodology.
Work through the examples provided in the User Manual.
Apply the methodology to calculate risk measures for a sample portfolio.

Explore Credit Risk Modeling Tools

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Deepen your understanding of the practical applications of credit risk models by following guided tutorials.

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Identify the different types of credit risk models
Select a credit risk model to explore
Follow a guided tutorial on the selected model
Apply the model to a real-world case study

Develop a credit risk management plan for a hypothetical financial institution

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Creating a credit risk management plan will help you apply the concepts you have learned in the course to a real-world scenario.

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Identify the key risks faced by the financial institution.
Develop a strategy to mitigate these risks.
Create a stress testing framework to assess the plan's effectiveness.

Career center

Learners who complete An Introduction to Credit Risk Management will develop knowledge and skills that may be useful to these careers:

Credit Risk Manager

Credit Risk Managers develop and implement strategies to manage credit risk for banks and other financial institutions. One must have a deep understanding of credit risk and how to manage it. This course offers exactly that. It is an introduction to credit risk modelling and hedging which is an essential skillset for a Credit Risk Manager to have.

See salaries and explore the career path for Credit Risk Manager

Credit Analyst

Credit Analysts assess the creditworthiness of individuals and businesses. Doing so requires a strong understanding of financial risk assessment and management. This course offers an introduction to credit risk modelling and hedging which may be very useful for aspiring Credit Analysts. This course will provide foundational knowledge that you can use to build a strong career in this field.

See salaries and explore the career path for Credit Analyst

Risk Manager

Risk Managers identify, assess, and manage risks for businesses and organizations. A deep understanding of financial risk is necessary for succeeding as a Risk Manager. This course offers such training. It provides an introduction to credit risk modelling and hedging which is a key area of risk management.

See salaries and explore the career path for Risk Manager

Portfolio Manager

Portfolio Managers manage investment portfolios for individuals and organizations. Doing so requires a deep understanding of financial markets and investment strategies. An introduction to credit risk modelling and hedging may be helpful as portfolio management involves making decisions about how to allocate assets and manage risk. This course covers these concepts in depth.

See salaries and explore the career path for Portfolio Manager

Financial Analyst

Financial Analysts make investment recommendations to individuals and organizations. In order to complete this role, one must be able to evaluate the financial performance of companies and make sound investment decisions. An introduction to credit risk modelling and hedging may be very useful as Financial Analysts must have a deep understanding of financial risk in order to succeed in their role. This course offers such an introduction and much more.

See salaries and explore the career path for Financial Analyst

Underwriter

Underwriters assess the risk of insuring individuals and businesses. They also determine the terms and conditions of insurance policies. To succeed in this role, one must have a deep understanding of financial risk. This course offers an introduction to credit risk modelling and hedging which may be helpful for aspiring Underwriters.

See salaries and explore the career path for Underwriter

Financial Advisor

Financial Advisors help individuals and families manage their finances. Doing so requires a deep understanding of financial markets and investment strategies. This course may be helpful as it provides an introduction to credit risk modelling and hedging which are key areas of finance.

See salaries and explore the career path for Financial Advisor

Bank Examiner

A Bank Examiner ensures that banks and other financial institutions abide by banking regulations. These regulations are in place to keep banks safe, sound, and operating efficiently. To succeed in this role, one must be adept at identifying and mitigating financial risks. The course you are considering may be helpful as it provides an introduction to credit risk modelling and hedging. Credit risk is one of the three fundamental risks that banks face which is important for bank examiners to understand.

See salaries and explore the career path for Bank Examiner

Loan Officer

Loan Officers assess the creditworthiness of loan applicants and make lending decisions. They also manage loan portfolios and work with borrowers to ensure timely repayment. Understanding financial risk is necessary for success as a Loan Officer. The topics covered in this course may prove to be useful as foundational knowledge.

See salaries and explore the career path for Loan Officer

Data Scientist

Data Scientists use data mining, machine learning, and other techniques to analyse data and extract insights. Doing so requires a strong foundation in mathematics, statistics, and programming. This course may be helpful as it provides an introduction to credit risk modelling which uses many of these skills.

See salaries and explore the career path for Data Scientist

Actuary

Actuaries use mathematical and statistical techniques to assess risk and uncertainty. Doing so requires a strong foundation in mathematics, statistics, and programming. This course may be helpful as it provides an introduction to credit risk modelling and hedging which uses many of these skills.

See salaries and explore the career path for Actuary

Statistician

Statisticians collect, analyze, and interpret data. Doing so requires a strong foundation in mathematics, statistics, and programming. This course may be helpful as it provides an introduction to credit risk modelling which uses many of these skills.

See salaries and explore the career path for Statistician

Quantitative Analyst

Quantitative Analysts use mathematical and statistical techniques to analyse financial data and make investment decisions. Doing so requires a strong foundation in mathematics, statistics, and programming. This course may be helpful as it provides an introduction to credit risk modelling which uses many of these skills.

See salaries and explore the career path for Quantitative Analyst

Management Consultant

Management Consultants help businesses and organizations improve their performance. Doing so requires a deep understanding of business strategy, operations, and finance. This course may be helpful as it provides an introduction to credit risk modelling and hedging which is a key area of finance.

See salaries and explore the career path for Management Consultant

Economist

Economists study the economy and make predictions about its future performance. Doing so requires a deep understanding of economic theory and data analysis. This course may be of some help as it provides an introduction to credit risk modelling which is used to analyze economic data.

See salaries and explore the career path for Economist