Credit risk is the risk of loss through a counterparty's inability or failure to meet a financial obligation, or deterioration in its credit quality. A loss model distinguishes credit default frequency from loss given default; shared exposures or systematic factors may produce dependence beyond an independent Poisson model.
Credit risk refers to the possibility that a borrower or counterparty will fail to meet their obligations in accordance with agreed terms, which often results in a financial loss for the lender or investor. This risk is particularly relevant in the context of loans, bonds, and other financial instruments where the repayment of principal and interest depends on the creditworthiness of the borrower.
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