CREDIT RISK

The ‘Supervisory guidance on the use of the fair value option by banks under IFRS’, published in June 2006 by the Basel Committee, also indicated in principle 7 that “regulatory capital should be adjusted for gains and losses from changes in own credit risk as a result of applying the[r]

nevertheless, they potentially allow for (1) the Value at Risk (VA R ) of eachtradable instrument to be more accurately measured (e.g., based on its pricevolatility, maturity, and so on) and (2) correlations among assets to be takeninto account. In the context of market risk, VA R meas[r]

means of portfolio models, as introduced in this book.His first professional position in risk management was with DeutscheBank, Frankfurt. In 1996, he earned a Ph.D. in mathematics from the Universityof Erlangen-Nuernberg and, in 1997, he was a post-doctoral member of themathematics departmen[r]

The overall aim is to allow for the incorporation of these factors into bond risk analysis, thereby allowing for the improvement of assessment tools and ratings.Over the past 12 months the sovereign debt of the USA, as well as Spain, Greece, Portugal and other nations primarily in the Eurozon[r]

His first professional position in risk management was with DeutscheBank, Frankfurt. In 1996, he earned a Ph.D. in mathematics from the Universityof Erlangen-Nuernberg and, in 1997, he was a post-doctoral member of themathematics department of Cornell University, Ithaca, New York. He hasautho[r]

∗Frankfurt MathFinance Institute, Johann Wolfgang Goethe-Universit¨at, Robert-Mayer-Str. 10, D-60054 Frankfurt a.M., Germany, e-mail: {ckuehn, schaik}@math.uni-frankfurt.deAcknowledgements. We would like to thank Andreas Kyprianou for valuable discussions and comments.1risk, cf. also Remark 1[r]

potential losses over the life of the asset may make sense.Such circumstances often arise in intransparent segmentswhere the market may perceive the originator of the creditto have superior information, thereby reducing the marketprice below the underwriter’s perceived “fair” value. Forsome other as[r]

and implementation of models that are otherwise similar.15. Asarnow and Marker (1995) present an empirical study of the relationship between the use of lines of credit in the event of default and borrower credit quality.16. Frye (2000) highlights the challenges and potential importance[r]

on the severity of the system-wide stress. Small differences in the level of system-wide stress can have large effects on the losses suffered by individual ABS CDO tranches. The “all or nothing” character of a tranche’s risk profile is more prominent for more senior tranches. Also, as Appendi[r]

tell (even ex post) whether the run merely hastened the failure of a funda-mentally insolvent bank, or whether the run scuppered an otherwise soundinstitution. Nevertheless, the distinction between insolvency and illiquidityis meaningful as a counterfactual proposition asking what would have hap-pen[r]

may or may not agree with the credit rating. Where should I look for information regarding municipal securities?In most cases, official statements as well as updated information regarding the issuer and the municipal bonds can be found on the Electronic Municipal Market Access (EMMA) website,[r]

sions. Journal of Finance, 31: 351-367, 1976.[5] C. Blanchet-Scalliet, M. Jeanblanc: Hazard rate for credit risk and hedging defaultablecontingent claims. Finance and Stochastics,8: 145-159, 2004.[6] P. Br´emaud and M. Yor: Changes of filtration and of probability measures, Z. Wahr. Ver[r]

The parameter estimate for the OTR dummy is more than three times largerin the subsample of bonds with a low credit rating relative to the subsampleof AAA bonds. This suggests that off-the-run credit-risky bonds have to re-ward their holders with an additional yield, which can be in ex[r]

There are two methods for calculation of bank credit risks:The first method: measures credit risks by the standardized approach based onexternal credit assessments.The second method: the banks use their own internal ratings-based system (IRB). The Standardized Approach (SA):The[r]

for pricing fixed-income securities throughout the economy. In normal times, interbank markets function smoothly. Rates are broadly stable across secured and unsecured segments, as well as across different collateral classes. Since August 2007, however, the functioning of interbank markets has becom[r]

bilities being correlated due to common factors in the economy. For example,default rates increase if the economy goes into a recession (see Altman, 1983/1990; Wilson, 1997a,b). Event correlation refers to how a ®rmÕs defaultprobability is aected by default of other ®rms. This has been modeled by t[r]

This book is an introduction to modern credit risk methodology as well a cookbook forputting credit risk models to work. We hope that the two purposes go together well. Fromour own experience, analytical methods are best understood by implementing them.Credit ri[r]

horizon underlying the specific risk measure. Finally, backtesting the statistical adequacy ofthe risk measure used is of key importance. Overall, academic worries on how wise it is tokeep on using VaR–like risk measures ought to be taken more seriously.Example 5. Simulation meth[r]

new bonds to replace maturing bonds. To avoid default, equity holders needto bear the rollover losses, while maturing debt holders are paid in full. This∗He is with the University of Chicago, and Xiong is with Princeton University and NBER. Anearlier draft of this paper was circulated under the titl[r]

[r]