Trying to model reality

Quantitative credit risk models are a must-have in today’s energy industry. But human judgement is still needed, as Maria Kielmas discovers

The need to show that an internal credit risk model is consistent with the regulatoryapproach will eventually be a requirement in the energy sector, says Ben de Prisco,vice-president of financial engineering at Toronto-based risk management consultantsAlgorithmics.

Credit is the black hole of any enterprise. This has probably been the hardestlesson the energy industry has learnt over the past two years. But these days,credit risk is not just the risk of a counterparty default. It is the

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