The Problem With Using Credit Grades To Quantify Portfolio Credit Risk
We look at some of the issues around doing quantitative credit risk analysis based on credit 'grades', and why doing this properly is not as straightforward as it might seem.
Some of the blame for the present credit crisis has been levelled at the rating agencies. In our opinion some of this criticism is justified, and some is not. We explain some of the surrounding issues.
In our view there are some fundamental aspects of the way in which basic credit risk calculations are often done which are, to be charitable, open to question.