Extreme Risk Control Model Of Credit Portfolio Based On ES-TV Measure

Through decentralization effect, credit portfolio management can help the bank realize the equilibrium between revenue and risk. But in recent years, financial extreme events occur frequently, putting great impact on the banking industry, so risk managers within banks have to reprocess risk modeling to identify and prevent these events. Therefore, the credit portfolio management of considering extreme risk measure has important significance for the bank to keep the dynamic equilibrium between revenue and risk, when a crisis happens.This paper puts forward Expected Shortfall-Tail Variance (ES-TV) method by learning or modifying current main risk measures methods, to comprehensively measure the credit portfolio extreme risk of the bank; at the same time, divides the credit risk into common loan risk and loan commitment risk, to reflect the new requirement, raised in Basel Ⅲ, of giving consideration to Balance Sheet risk and Off-Balance Sheet risk. Then, in order to obtain the optimal allocation structure of credit portfolio by using the linear weighted overall merit method and establishing a lagrangian function, this paper builds a multi-objected and quadratic programming model, maximizing ES (this paper uses yield rate to calculate ES, so the opposite number of ES finally reflect the extreme loss) and minimizing TV as two objects, and RAROC as one main restrain.The case study certifies that in order to control the extreme risk, the bank should timely prefer high-credit or high-revenue portfolio; the bank in the case study has relatively mature credit experience on common loan, but its credit ability on loan commitment has to be improved; the extreme risk is positively related with revenue.Major contributions of this paper include:(1) providing ES-TV measure method, which can comprehensively measure both losses and loss volatility of the credit portfolio;(2) considering loan commitment items in the credit portfolio management, which makes the risk control not restricted to Balance Sheet items;(3) based on the European put option pricing model, providing a loan commitment pricing model, and relevant calculation methods of ES and TV.