Abstract or Introduction
Portfolio credit risk models give a probability distribution for portfolio credit losses. Validation of the model
includes testing whether observed losses were consistent with the model’s predictions. The main focus when
testing credit portfolio models is on the “high loss” end of the distribution, which, assuming normal distribution,
means “low probability”. Normally one or five percent Value at risk is used, which means that a given loss within
specified time will be observed with a probability of one or five percent respectively.
“A risk manager has two jobs: make people take more risk the 99% of the time it is safe to do so, and survive
the other 1% of the time. Value at risk is the boarder.”1
- Quote paper
- Manuel Mahler-Hutter (Author), 2008, Validation of credit portfolio models, Munich, GRIN Verlag, https://www.grin.com/document/153552
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