Impairment Model Applying Montecarlo Simulation: Expected Loss Approach for Companies in the Real Sector

In the credit risk impairment model framed within International Financial Reporting Standards 9, companies must estimate a probability of default (PD) for all financial assets valued at amortized cost. Research results shown in this article focus on an impairment model for companies in the real sector. A model framed in Montecarlo and in the International Scoring, Fair Isaac and Company methodology is proposed. First, each sector is risk rated; then, depending on the historical date of loss of its financial assets, each entity calculates the PD according to the rating of the sector where its financial assets are located. Finally, the model classifies each sector in a credit risk score, and allows to validate, through Montecarlo simulation, the probability of loss directly in the companies.