The Analytical Cooperative


Probability of Default (PD) & Loss Given Default (LGD) Solutions

Our PD & LGD solutions are driven by methodological frameworks for evaluating the credit risk (typically) of low-data sectors such as banks, insurers, sovereigns, specialised finance classes and corporates.

Even in more data rich sectors (such as small & medium sized corporates and retail credit), actual experience has demonstrated that sole reliance on the quantitative analysis of historical data can be imprudent. There is never sufficient, relevant, historical data to rely purely on the discernment of past patterns as the ” holy grail” for evaluating future credit risk. Moreover, the assumption that observed past experience will be faithfully replicated in the future is often a naïve one. Models that learn from past and current experience on a dynamic base add considerable value to the credit evaluation and surveillance process but can only learn from significant adverse events after they have happened!

At the AC we recognise that quantitative analysis and expert judgement are two sides of the same coin. Our scoring models and surrounding processes are therefore built in a manner that incorporates the benefits of both. The AC associates have unique, tried and tested experience in developing and implementing credit risk frameworks across the globe.

Our services in this domain include:

• Methodologies (development, customisation or “off the shelf”)
• Benchmarking (of in-house or third-party methodologies)
• Scoring of obligors