Saunders and Allen provide a top-down introduction to many of the standard models for measuring credit risk in bond or debt portfolios. Models include the KMV, CreditMetrics, McKinsey, KPMG, Loan Analysis System (LAS) and CSFP models. Each model is explained and comparisons are made. Additional chapters cover loan portfolio selection, back-testing issues, stress-testing, RAROC, off-balance sheet credit risk, and credit derivatives.

This is a wonderful book for someone to get their "feet wet." The vast literature on portfolio credit risk modeling can be intimidating, and it is difficult to know where to begin. Saunders and Allen provide an excellent jump-off point. This book is easy to read and offers an overview of the subject.

The book has two flaws. First, its top-down approach of describing entire models is nice because it goes directly to results, but it doesn't build much of an intellectual foundation. Reading this book, you rapidly become familiar with various models, but you don't achieve depth of understanding. You would never imagine that many of the techniques can be applied in a financial engineering context as well. Plan on graduating to more substantive books by Bluhm, Overbeck and Wagner (2003) and/or Duffie and Singleton (2003).