Financial Mathematics for Credit Risk Management

Financial mathematics is the application of mathematical methods to financial markets and products. In the context of credit risk management, it involves the use of mathematical models to assess the likelihood of default of a borrower and the potential loss in the event of default. This allows financial institutions to better manage their credit risk by setting appropriate loan terms and pricing, and by setting appropriate capital requirements to cover potential losses. Commonly used methods include credit scoring models, portfolio default models, and loss given default models.