Credit Risk Management In and Out of the Financial Crisis New Approaches to Value at Risk and Other Paradigms, 3rd Edition

List of Abbreviations.

Preface.

PART ONE: Bubbles and Crises: The Global Financial Crisis of 2007–2009.

CHAPTER 1: Setting the Stage for Financial Meltdown.

Introduction.

The Changing Nature of Banking.

Reengineering Financial Institutions and Markets.

Summary.

Appendix 1.1: Ratings Comparisons for the Three Major Rating Agencies.

CHAPTER 2: The Three Phases of the Credit Crisis.

Introduction.

Bursting of the Credit Bubble.

Phase 1: Credit Crisis in the Mortgage Market.

Phase 2: The Crisis Spreads—Liquidity Risk.

Phase 3: The Lehman Failure—Underwriting and Political Intervention Risk.

Summary.

CHAPTER 3: The Crisis and Regulatory Failure.

Introduction.

Crisis Intervention.

Looking Forward: Restructuring Plans.

Summary.

PART TWO: Probability of Default Estimation.

CHAPTER 4: Loans as Options: The Moody's KMV Model.

Introduction.

The Link between Loans and Options.

TheMoody’s KMV Model.

Testing the Accuracy of EDFTM Scores.

Critiques of Moody’s KMV EDFTM Scores.

Summary.

Appendix 4.1: Merton’s Valuation Model.

Appendix 4.2: Moody’s KMV RiskCalc.

CHAPTER 5: Reduced Form Models: Kamakura's Risk Manager.

Introduction.

Deriving Risk-Neutral Probabilities of Default.

Generalizing the Discrete Model of Risky Debt Pricing.

The Loss Intensity Process.

Kamakura’s Risk Information Services (KRIS).

Determinants of Bond Spreads.

Summary.

Appendix 5.1: Understanding a Basic Intensity Process.

CHAPTER 6: Other Credit Risk Models.

Introduction.

Credit Scoring Systems.

Mortality Rate Systems.

Artificial Neural Networks.

Comparison of Default Probability Estimation Models.

Summary.

PART THREE: Estimation of Other Model Parameters.

CHAPTER 7: A Critical Parameter: Loss Given Default.

Introduction.

Academic Models of LGD.

Disentangling LGD and PD.

Moody's KMV's Approach to LGD Estimation.

Kamakura's Approach to LGD Estimation.

Summary.

CHAPTER 8: The Credit Risk of Portfolios and Correlations.

Introduction.

Modern Portfolio Theory (MPT): An Overview.

Applying MPT to Nontraded Bonds and Loans.

Estimating Correlations across Nontraded Assets.

Moody’s KMV’s Portfolio Manager.

Kamakura and Other Reduced Form Models.

Summary.

PART FOUR: Putting the Parameters Together.

CHAPTER 9: The VAR Approach: CreditMetrics and Other Models.

Introduction.

The Concept of Value at Risk.

Capital Requirements.

Technical Issues and Problems.

The Portfolio Approach in CreditMetrics.

Summary.

Appendix 9.1: Calculating the Forward Zero Curve for Loan Valuation.

Appendix 9.2: Estimating Unexpected Losses Using Extreme Value Theory.

Appendix 9.3: The Simplified Two-Asset Subportfolio Solution to the N-Asset Portfolio Case.

Appendix 9.4: CreditMetrics and Swap Credit Risk.

CHAPTER 10: Stress Testing Credit Risk Models: Algorithmics Mark-to-Future.

Introduction.

Back-Testing Credit Risk Models.

Using the Algorithmics Mark-to-Future Model.

Stress Testing U.S. Banks in 2009.

Summary.

CHAPTER 11: RAROC Models.

Introduction.

What Is RAROC?

RAROC, ROA, and RORAC.

Alternative Forms of RAROC.

The RAROC Denominator and Correlations.

RAROC and EVA.

Summary.

PART FIVE: Credit Risk Transfer Mechanisms.

CHAPTER 12: Credit Derivatives.

Introduction.

Credit Default Swaps.

Credit Securitizations.

Financial Firms' Use of Credit Derivatives.

CDS Spreads and Rating Agency Rating Systems.

Summary.

Appendix 12.1: Pricing the CDS Spread with Counterparty Credit Risk Exposure.

CHAPTER 13: Capital Regulation.

Introduction.

The 2006 Basel II Plan.

Summary.

Appendix 13.1: Loan Rating Systems.

Notes.

Bibliography.

Index.