SDST4607 Credit risk analysis (6 credits) Academic Year 2025
Offering Department SCDS (Department of Statistics and Actuarial Science) Quota ---
Course Co-ordinator Dr K P Wat, SCDS (Department of Statistics and Actuarial Science) < watkp@hku.hk >
Teachers Involved (Dr K P Wat,Statistics & Actuarial Science)
Course Objectives Credit risk has always been a significant financial risk in the banking industry. It is related to the possibility of loss arising from defaults on debts, swaps, or other counterparty instruments.  Credit risk may also result from a change in the value of an asset resulting from a change in the counterparty's creditworthiness.  This course will introduce students to quantitative models for measuring and managing credit risk. It also aims to provide students with an understanding of the credit risk methodology used in the financial industry and the regulatory framework in which the credit risk models operate.
Course Contents & Topics Probabilities of default, recovery rates and loss given default; Default and credit migration; credit scoring and internal rating models; Credit portfolio models such as CreditMetrics, CreditPortfolioView, KMV and actuarial approach; Credit derivatives.
Course Learning Outcomes
On successful completion of this course, students should be able to:

CLO 1 understand the Basel requirements for credit risk
CLO 2 estimate credit scores using the logit model
CLO 3 understand and estimate default probabilities using various approaches such as Moody's KMV and the mortality method
CLO 4 understand the concept of credit Value-at-Risk and the CreditMetrics approach
CLO 5 estimate default correlations
CLO 6 assess credit rating systems
Pre-requisites
(and Co-requisites and
Impermissible combinations)		 Pass in SDST3618 or SDST3905 or SDST3910 or (FINA2322 and any University level 3 course)
Only for students admitted in 2025 and thereafter.
Course Status with Related Major/Minor /Professional Core 2U000C00 Course not offered under any Major/Minor/Professional core
2024 Major in Risk Management ( Disciplinary Elective )
2024 Minor in Risk Management ( Disciplinary Elective )
2023 Major in Risk Management ( Disciplinary Elective )
2023 Minor in Risk Management ( Disciplinary Elective )
2022 Major in Risk Management ( Disciplinary Elective )
2022 Minor in Risk Management ( Disciplinary Elective )
2021 Major in Risk Management ( Disciplinary Elective )
2021 Minor in Risk Management ( Disciplinary Elective )
Course to PLO Mapping 2024 Major in Risk Management < PLO 1,2,3,4,5,6 >
2023 Major in Risk Management < PLO 1,2,3,4,5,6 >
2022 Major in Risk Management < PLO 1,2,3,4,5,6 >
2021 Major in Risk Management < PLO 1,2,3,4,5,6 >
Offer in 2025 - 2026 Y        2nd sem    Examination May     
Offer in 2026 - 2027 Y
Course Grade A+ to F
Grade Descriptors
A Demonstrate thorough mastery at an advanced level of extensive knowledge and skills required for attaining all the course learning outcomes. Show strong analytical and critical abilities and logical thinking, with evidence of original thought, and ability to apply knowledge to a wide range of complex, familiar and unfamiliar situations. Apply highly effective organizational and presentational skills.
B Demonstrate substantial command of a broad range of knowledge and skills required for attaining at least most of the course learning outcomes. Show evidence of analytical and critical abilities and logical thinking, and ability to apply knowledge to familiar and some unfamiliar situations. Apply effective organizational and presentational skills.
C Demonstrate general but incomplete command of knowledge and skills required for attaining most of the course learning outcomes. Show evidence of some analytical and critical abilities and logical thinking, and ability to apply knowledge to most familiar situations. Apply moderately effective organizational and presentational skills.
D Demonstrate partial but limited command of knowledge and skills required for attaining some of the course learning outcomes. Show evidence of some coherent and logical thinking, but with limited analytical and critical abilities. Show limited ability to apply knowledge to solve problems. Apply limited or barely effective organizational and presentational skills.
Fail Demonstrate little or no evidence of command of knowledge and skills required for attaining the course learning outcomes. Lack of analytical and critical abilities, logical and coherent thinking. Show very little or no ability to apply knowledge to solve problems. Organization and presentational skills are minimally effective or ineffective.
Communication-intensive Course N
Course Type Lecture-based course
Course Teaching
& Learning Activities
Activities Details No. of Hours
Lectures 36.0
Tutorials 12.0
Reading / Self study 100.0
Assessment Methods
and Weighting
Methods Details Weighting in final
course grade (%)		 Assessment Methods
to CLO Mapping
Assignments Coursework (participation, assignments, tutorials, and class test(s)) 40.0 1,2,3,4,5,6
Examination One 2-hour written examination 60.0 1,2,3,4,5,6
Required/recommended reading
and online materials		 Bluhm, C., Overbeck, L., and Wagner, C. (2010). Introduction to Credit Risk Modeling (2nd Edition). CRC Press.
Löffler, G. and Posch, P. N. (2011). Credit Risk Modeling using Excel and VBA (2nd Edition). Wiley.
Resti, A. and Sironi, A. (2007). Risk Management and Shareholders' Value in Banking: From Risk Measurement Models to Capital Allocation Policies. Wiley.
Saunders, A. and Allen, L. (2010). Credit Risk Measurement In and Out of the Financial Crisis: New Approaches to Value at Risk and Other Paradigms (3rd Edition). Wiley.
Crouhy, M., Galai, D., and Mark, R. (2001). Risk Management. McGraw-Hill.
Jorion, P. (2011). Financial Risk Manager Handbook (6th Edition). Wiley.
Hull, J. C. (2018). Risk Management and Financial Institutions (5th Edition). Wiley.
Hull, J. C. (2018). Options, Futures, and Other Derivatives (10th Edition). Pearson.
Gujarati, D. N. and Porter, D. C. (2009). Basic Econometrics (5th Edition). McGraw-Hill.
Gregory, J. (2015). The xVA Challenge: Counterparty Credit Risk, Funding, Collateral and Capital (3rd Edition). Wiley.
Malz, A. M. (2011). Financial Risk Management: Models, History, and Institutions. Wiley.
Course Website http://moodle.hku.hk
Additional Course Information