Outline the issues with traditional credit risk assessment before the introduction of models.

a. Outline the issues with traditional credit risk assessment before the introduction of models. (30% question weight)

b. Explain what were the main factors that caused the introduction of credit risk models in the banking industry? (35% question weight)

c. Discuss the evolution of credit risk analytics from its beginning in the 1930s. (35% question weight)

a. State the four classification of variables for predicting LGD? (5% question weight)

b. Describe how the type of debt instrument will impact the LGD. Give an example of how different type of debt instruments will influence repayment of a debt for a company in default. (15% question weight)

c. Give two examples of firm-specific variables for predicting LGD. Your answer should include the expected relationship between the variables and LGD and a rationale for this. (40% question weight)

Give two examples of macroeconomic-specific variables for predicting LGD. Your answer should include the expected relationship between the variables and LGD and a rationale for this.