Credit Risk Modeling and Valuation: an Introduction
نویسنده
چکیده
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.
منابع مشابه
netting rules and re-hypothecation
In this paper we describe how to include funding and margining costs into a risk-neutral pricing framework for counterparty credit risk. We consider realistic settings and we include in our models the common market practices suggested by the ISDA documentation without assuming restrictive constraints on margining procedures and close-out netting rules. In particular, we allow for asymmetric col...
متن کاملSemi-Analytical Valuation of Basket Credit Derivatives in Intensity-Based Models
This paper presents a semi-analytical valuation method for basket credit derivatives in a flexible intensity-based model. Default intensities are modeled as correlated affine jump-diffusions. An empirical application documents that the model fits market prices of benchmark basket credit derivatives reasonably well, consistent with the observed correlation skew. Hence, I argue, contrary to comme...
متن کاملCredit 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).
متن کاملCredit Valuation Adjustment
Credit risk has become a topical issue since the 2007 Credit Crisis, particularly for its impact on the valuation of OTC derivatives. This becomes critical when the credit risk of entities involved in a contract either as underlying or counterparty become highly correlated as is the case during macroeconomic shocks. It impacts the valuation of such contracts through an additional term, the cred...
متن کاملUtility Valuation of Credit Derivatives: Single and Two-Name Cases
We study the effect of risk aversion on the valuation of credit derivatives. Using the technology of utility-indifference valuation in intensity-based models of default risk, we analyze resulting yield spreads for single-name defaultable bonds, and a simple representative two-name credit derivative. The impact of risk averse valuation on prices and yield spreads is expressed in terms of effecti...
متن کامل