Credit Risk Management Strategy for InvestWell

In the context of portfolio management, credit risk management is vital for safeguarding investment portfolios against potential defaults by borrowers. You are tasked with developing a comprehensive credit risk management strategy for a fictitious investment firm, InvestWell, which manages a diversified portfolio comprising corporate bonds, mortgage-backed securities, and a small allocation to high-yield (junk) bonds. InvestWell has recently faced increased volatility in the credit markets, characterized by rising interest rates and declining credit ratings among some key sectors.

Your prompt is to articulate the following:

• The key components of a robust credit risk management framework.
• Methods for assessing and quantifying credit risk in the context of InvestWell’s portfolio.
• Strategies to mitigate credit risk, including specific actions to take in light of the current market environment.
• How to integrate the credit risk management strategy with overall portfolio risk management.

Be sure to use relevant theories, models, or frameworks to support your analysis.