We use BERT, an AI-based algorithm for language understanding, to decipher regulatory climate-risk disclosures and measure their impact on the credit default swap (CDS) market. Risk disclosures can either increase or decrease credit spreads, depending on whether disclosure reveals new risks or...

Credit risk is defined as the risk that borrowers will fail to pay its loan obligations. In recent years, a large number of banks have developed sophisticated systems and models to help bankers in quantifying, aggregating and managing risk. The outputs of these models also play increasingly...