Risk Latte - 1997-A Turning Point in the History of Credit Risk

1997-A Turning Point in the History of Credit Risk

Rahul Bhattacharya
May 11, 2006

The year 1997 was the turning point in the history of credit risk. Three major models of measuring credit risk of portfolios were introduced, thus igniting a revolution in the credit risk and the credit derivatives markets all over the world.

The three models that were published that year were:

  1. J.P.Morgan's technical document, CreditMetrics;
  2. CSFP's (Credit Suisse Financial Products) technical document, Credit Risk plus;
  3. Two articles, collectively called Credit Portfolio View, in Risk Magazine by Thomas Wilson of McKinsey & Co.

Before 1997 there were no established theoretical models for assessing portfolio credit risk (at least not in the public domain) and then within a span of six months in that year there were three well documented credit risk models.

It is amazing how R & D happens in Finance.

Reference: J.P.Morgan Guide to Credit Derivatives (with Contributions from the RiskMetrics Group)

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