Calculation of expected and unexpected losses

With IziRisk Credit you can calculate the expected losses of a credit portfolio. But this has no greater science. It can be done by any Excel template by multiplying the 3 factors of the amount exposed by the probability of default times the loss given default, for each operation. Then all losses from all credit operations in the portfolio are added up. The real challenge consists in calculating the unexpected loss at a given confidence level, and therefore calculating the Value at Risk (VaR) of the total portfolio. IziRisk Credit does this by running a Monte Carlo simulation where it generates thousands of scenarios for each credit transaction in the portfolio, thus generating a usually skewed histogram of credit loss. Due to the asymmetry of the curve, it is impossible to obtain the unexpected loss by any other method than the Monte Carlo simulation. The analysis of expected and unexpected losses can be done by a multiplicity of dimensions in which the portfolio can be segmented: by currency, region, type of portfolio, branch, type of guarantee, vintage, or any other dimension. In addition, it is possible to store loss information over time. In this way, the behavior of losses can be followed chronologically. Therefore, by implementing changes in the management of the credit portfolio, it is possible to measure the effectiveness of the strategies and tactics implemented to better manage the portfolio. This is where risk management ceases to be merely a compliance issue, and effectively becomes a powerful strategic tool for driving the credit business. IziRisk Credit can be implemented in two ways. For relatively small portfolios, IziRisk Quantum over Excel is recommended. For larger portfolios, our Software as a Service version performs the entire process in an integrated manner, processing, simulating, analyzing and storing the data on a cloud application with the highest global information security standards.