Credit Risk Model And Var Models Assignment

Running Head: RISK MANAGEMENT
RISK MANAGEMENT
Name of the Student
Name of the University
Author Note

RISK MANAGEMENT1
Executive Summary
The main objective of this report is to eliminate the issues associated with risk assessment
models in banks. The study has been supported by analysing credit risk model and VAR
models as a risk management tools. It is recommended, the banks are more focused on
maximising the returns but not on minimising the risks from credit models and VAR models.

RISK MANAGEMENT2
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Part A.....................................................................................................................................3
Credit Risk Model..............................................................................................................3
VAR Models......................................................................................................................5
Part B......................................................................................................................................6
Recommendations..............................................................................................................6
Conclusion..................................................................................................................................9
References................................................................................................................................11

RISK MANAGEMENT3
Introduction
This paper will focus on issues and problems that is related with credit risk models
and VAR models in banking sectors. The problems of both the models has been discussed in
this paper. The last part of this paper has provided certain recommendations for the banks to
avoid such problem related to the risk management models. The main objective of this report
is to eliminate the issues associated with risk assessment models in banks.
Discussion
Part A
Risks in Banking
Banking sectors are exposed to variety of risks that needs to be controlled by
following the government regulations. This is a very important matter because it can lead to
failure in banks and may impact the privacy of millions of people. It also affects the
investor’s decisions and will be not interested to invest in the banks and hence, can cause
lower profits for the banks (Alodayni, 2016).
Credit Risk Model
Credit Risk Model is very important in solving the various problems related to credit
risks. Credit risk is the risk of borrower not paying back the loan, credit card and some other
type of loan (Doss, 2017). Credit Risk model calculates the chances of defaults of borrowers
on loans. If he/she fails to repay the loans, it calculates how much loss the lender will bear
from the outstanding amount. Banks faces credit risks also from financial instruments like
interbank transactions, foreign exchange transactions, trade financing, options and many
more (Yamanaka & Kinoshita, 2018).
Problems in Credit Risks Model