the present paper aimed at studying the current models of credit portfolio management. there are currently three types of models which consider the risk of credit portfolio: the structural models (moody's kmv model, and credit- metrics model), the intensity models (the actuarial models) and the econometric models (the macro-factors model). the development of these three types of models is based...

We continue to study a credit risk model of financial market introduced recently by the authors, in which dynamics intensity rates two default times are described linear combinations three independent geometric Brownian motions. The default-free risky asset prices modeled motions that not ones describing rates. obtain closed form expressions for no-arbitrage some first-to-default and second-to-...

This document contains results and other material that is supplementary to Duffie, Eckner, Horel, and Saita (2009). Section I extends the basic model to allow for unobserved cross-sectional heterogeneity of default risk. Section II allows for a nonlinear dependence of default intensity on distance to default, through a simple non-parametric specification. Section III provides some information o...

We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment involves a long position in a put option plus a short position in a call option, both with zero strike and written on the residual net value of the contract...

The literature on credit risk consists of different approaches in modeling the behavior of defaultable bonds. The structural approach is based on the evolution of the firm value to determine default and recovery. In contrast, the more recently developed intensity-based models specify the default time exogenously. In this approach the defaultable yield curve results from the risk-free yield curv...

We consider the optimal portfolio problem of a power investor who wishes to allocate her wealth between several credit default swaps (CDSs), a stock index, and a money market account. We model contagion risk among the reference entities in the portfolio using a reduced form Markovian model with interacting default intensities. Using the dynamic programming principle, we establish a lattice depe...

We model dynamic credit portfolio dependence by using default contagion in an intensity-based framework. Two different portfolios (with 10 obligors), one in the European auto sector, the other in the European financial sector, are calibrated against their market CDS spreads and the corresponding CDS-correlations. After the calibration, which are perfect for the banking portfolio, and good for t...

Much of the existing literature on default contagion assumes a direct causal relationships between two obligors’ defaults. In this paper we present a model in which default contagion arises without causal links solely from information effects if investors are imperfectly informed about some common factors affecting the true riskiness of the obligors. We model this effect in a simple extension o...

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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).