MODELING AND VALUATION OF CREDIT RISK CIME - EMS Summer School on Stochastic Methods in

MODELING AND VALUATION OF CREDIT RISK CIME-EMS Summer School on Stochastic Methods in Finance

Credit risk modeling using time-changed Brownian motion

Motivated by the interplay between structural and reduced form credit models, we propose to model the firm value process as a time-changed Brownian motion that may include jumps and stochastic volatility effects, and to study the first passage problem for such processes. We are lead to consider modifying the standard first passage problem for stochastic processes to capitalize on this time chan...

Credit Risk Modeling and CDS Valuation

The goal of this paper is to determine the Incremental Risk Charge (IRC) and the Comprehensive Risk Measure (CRM) of a portfolio consisting of credit derivatives and tranches. More specifically, we implement different methods to calibrate default intensity models, backtest our IRC calculations over historical data, and focus our attention on a basket of Credit Default Swaps (CDS).

Time - inhomogeneous Lévy processes in interest rate and credit risk models

In this thesis, we present interest rate models and a credit risk model, all driven by time-inhomogeneous Lévy processes, i.e. stochastic processes whose increments are independent but in general not stationary. In the interest rate part, we discuss a Heath–Jarrow–Morton forward rate model (the Lévy term structure model), a model for forward bond prices (the Lévy forward price model) and a Libo...

Credit Risk Modeling and Valuation: an Introduction

Credit risk is the distribution of financial losses due to unexpected changes in the credit quality of a counterparty in a financial agreement. We review the structural, reduced form and incomplete information approaches to estimating joint default probabilities and prices of credit sensitive securities.