Alarm System for Credit Losses Impairment

Yahia Salhi (1) , Pierre-Emmanuel Thérond (1)

1 SAF - Laboratoire de Sciences Actuarielle et Financière

The recent fi nancial crisis has lead the IASB to settle new reporting standards for fi nancial instruments. The extended ability to measure some debt instruments at amortized cost is associated with a new impairment losses mechanism: Expected Credit Losses. In this paper, after a brief description of the principles elaborated by IASB for IFRS 9, we propose a methodology using CDS market prices in order to monitor signi cant changes in creditworthiness of fi nancial instruments and subsequent credit losses impairment. This methodology is implemented in detail to a real world dataset. Numerical tests are drawn to assess the eff ectiveness of the procedure.

Keywords: Credit Risk; Default; Detection; Monitoring; Impairment; Accounting; IFRS; Insurance; CDS

Domains: Risk Management [q-fin.RM]; Business administration

Yahia Salhi, Pierre-Emmanuel Thérond. Alarm System for Credit Losses Impairment. 2014. ⟨hal-00927391v1⟩