Credit Risk Modelling

Financial Risk Management

Credit Risk Modelling

By Michael Gordy
Risk Books April 2002

Specifications

ISBN-13
9781904339083
Publisher
Risk Books
Publication
April 2002
Format
Paperback
Jurisdiction
International ? Countri(es) for reference only

Details

A unique volume that brings together the most innovative and instrumental papers on credit risk modelling to reflect the major developments to date. This volume also focuses on the influences that are currently shaping the industry.

  • Designed in order for readers to easily familiarise themselves with all the leading authorities, ideas and techniques used in today’s business
  • The papers are subdivided into easy-reference sections that include credit portfolio modelling and measurement, credit derivatives, default models and prediction, and credit risk modelling in relation to Basel II
  • Introduced by Michael Gordy, who illustrates the significance that each chapter has on modern credit practice
  • Allows the reader to compare and contrast two different philosophies in credit risk modelling - ’structural models’ and ’reduced-form models’
  • Covers the statistical and financial tools that lie behind credit risk theory and management in addition to offering a comprehensive treatment of the pricing of credit derivatives, including credit swaps and CDOs
  • Includes detailed analysis on the basic parameters that dominate credit risk modelling, such as default probabilities, credit ratings, rating transitions and recovery rates


Table of Contents

Authors

Introduction

I. PRICING CREDIT RISK

  • Credit Derivatives Made Simple

Lane Hughston and Stuart Turnbull

  • Applying HJM to Credit Risk

Robert Maksymiuk and Dariusz Gatarek

  • The Price of Credit

Philippe Khuong-Huu, Vladimir Finlestein and Bruce Broder

  • Price and Probability

Richard Martin, Kevin Thompson and Christopher Browne

  • Distance to Default

Marco Avellaneda and Jingyi Zhu

  • Equity to Credit Pricing

George Pan

  • Getting the Pricing Right

Angelo Arvanitis

  • On the Edge of Completeness

Angelo Arvanitis and Jean-Paul Laurent

II. MEASURING DEFAULT RISK

  • Measuring Default Accurately

Jorge Sobehart and Sean Keenan

  • A Credit Risk Catwalk

Sean Keenan and Jorge Sobehart

  • The Need for Hybrid Models

Jorge Sobehart and Sean Keenan

III. DEPENDENCE IN DEFAULTS AND RECOVERIES

  • Devil in the Parameters

H. Ugur Koyluoglu, Anil Bangia and Thomas Garside

  • Modelling Default Correlation

Krishan Nagpal and Reza Bahar

  • How Dependent are Defaults?

Richard Martin, Kevin Thompson and Christopher Browne

  • Copulas and Credit Models

Rüdiger Frey, Alexander McNeil and Mark Nyfeler

  • Collateral Damage

Jon Frye

  • Depressing Recoveries

Jon Frye

IV. VALUE-AT-RISK FOR CREDIT PORTFOLIOS

  • Integrating Correlations

Peter Bürgisser, Alexandre Kurth, Armin Wagner and Michael Wolf

  • Taking to the Saddle

Richard Martin, Kevin Thompson and Christopher Browne

  • Calculating Portfolio Loss

Sandro Merino and Mark Nyfeler

V. BASEL II

  • IRB Approach Explained

Tom Wilde

  • Pro-cyclicality in the New Basel Accord

D. Wilson Ervin and Tom Wilde

  • The Maturity Effect on Credit Risk Capital

Michael Kalkbrener and Ludger Overbeck

VI. ASYMPTOTIC METHODS IN VAR

  • Loan Portfolio Value

Oldrich Vasicek

  • Probing Granularity

Tom Wilde

  • Analytical Approach to Credit Risk Modelling

Michael Pykhtin and Ashish Dev

  • Unsystematic Credit Risk

Richard Martin and Tom Wilde

VII. PRICING MULTI-NAME DEFAULT RISK

  • Copula Vulnerability

Umberto Cherubini and Elisa Luciano

  • Pricing Default Baskets

Wolfgang Schmidt and Ian Ward

  • Long or Short in CDOs

Hans Boscher and Ian Ward

  • Extreme Events and Default Baskets

Roy Mashal and Marco Naldi

VIII. VALUE-AT-RISK FOR ASSET SECURITISATIONS

  • Credit Risk in Asset Securitisations: An Analytical Model

Michael Pykhtin and Ashish Dev

  • Coarse-grained CDOs

Michael Pykhtin and Ashish Dev

  • Random Tranches

Michael Gordy and David Jones

About the Author

Michael Gordy is a senior economist in the research and statistics division of the Federal Reserve Board. His current research focuses on the design, calibration, computation and validation of models of portfolio credit risk, and on the adaptation of these models to setting regulatory capital requirements. Michael received his PhD in economics from MIT in 1994 and a BA in mathematics and philosophy from Yale University in 1985.

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