Technical papers/Credit Risk
Wrong-way risk, credit and funding
The risk of exposure and counterparty default probability both increasing – so-called wrong-way risk – is usually understood in terms of the correlation between the two variables. But this approach...
The credit additional termination event (ATE) clause is a counterparty risk mitigant that allows banks to terminate and close out bilateral derivative contracts if the credit rating of the counterparty...
This paper examines determinants of creditor recoveries from defaulted debt instruments. First, we argue that to properly measure a debt instrument's relative position in a firm's debt structure, debt...
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More Technical papers/Credit Risk articles
Deriving consensus ratings of the big three rating agencies
This paper introduces a model framework for dynamic credit rating processes. Our framework aggregates ordinal rating information stemming from a variety of rating sources. The dynamic of the consensus rating captures systematic as well as idiosyncratic...
The survival analysis approach in Basel II credit risk management: modeling...
In the last three years most European banking groups have chosen to adopt Basel II "advance status". This has required banks to develop statistical models for estimating probability of default, loss given default and exposure at default within a horizon...
Cutting Edge introduction: Wrong-way risk and the limits of correlation...
Traditional models for wrong-way risk focus on the correlation between default and exposure – a blunt tool for a tail risk. Alternatives are thin on the ground, but a scenario-based approach may provide some fresh insight. Laurie Carver introduces this...
DVA for assets
Debit valuation adjustments are becoming well understood for derivatives and liabilities – but can affect the asset side of the balance sheet too. Specifically, assets such as so-called goodwill depend on the creditworthiness of the firm. Chris Kenyon...
Wrong-way risk, credit and funding
The risk of exposure and counterparty default probability both increasing – so-called wrong-way risk – is usually understood in terms of the correlation between the two variables. But this approach is focused more on the centre of the distribution,...
Cutting Edge introduction: Goodwill for DVA
The debit valuation adjustment is a controversial concept when applied to derivatives liabilities, but it has won accountants round. Further thought shows it could be applied more broadly – even to purely positive assets. Laurie Carver introduces this...
DVA for assets
Debit valuation adjustments are becoming well understood for derivatives and liabilities – but can affect the asset side of the balance sheet too. Specifically, assets such as so-called goodwill depend on the creditworthiness of the firm. Chris Kenyon...
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