Author(s)

Zhongyuan Xu ¹

Affiliation(s)

¹ Master of Finance (MAF), Emory University, Atlanta, Georgia, United States

Corresponding Author

Zhongyuan Xu

ABSTRACT

In today's complex and changing financial risk management field, the importance of accurate assessment of credit portfolio risk is self-evident, which is related to the stable operation and sustainable development of financial institutions. This study adopts the counterfactual hypothesis analysis to conduct an in-depth comparative analysis of the causal and predictive effects of three representative credit portfolio models. The results show that the p-values of all three credit portfolios are well below the 0.05 level of significance, which is usually considered statistically significant. This data result fully proves that these three credit portfolio models have strong effectiveness in coping with financial risk, and can effectively resist the impact of financial risk to a certain extent. It proves that this credit portfolio approach is well able to withstand the pressure of financial risk. This strengthens the effective management method of financial risk management and the application value of the risk management method based on the theory of causal inference in the actual financial business.

KEYWORDS

Financial risk management; credit portfolio; counterfactual analysis; credit lending; mortgage lending

CITE THIS PAPER

Zhongyuan Xu, Causal Inference in Financial Risk Management: Applications of Counterfactual Analysis in Credit Portfolios. Financial Engineering and Risk Management (2025) Vol. 8: 6-13. DOI: http://dx.doi.org/10.23977/ferm.2025.080102.

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