Technical papers/Credit Risk
Modelling and estimating dependent loss given default
Martin Hillebrand proposes a portfolio credit risk model with dependent loss given default (LGD), offering a reasonable economic interpretation that is easily applicable to real data. He builds a precise...
Il mercato dei derivati creditizi sta crescendo a ritmo molto sostenuto e il Credit Default Swap (CDS) ne e divenuto lo strumento piu diffuso. Il presente articolo e particolarmente rilevante per il trading...
Low-default portfolios are a key Basel II implementation challenge, and various statistical techniques have been proposed for use in PD estimation for such portfolios. To produce estimates using these...
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More Technical papers/Credit Risk articles
A saddle for complex credit portfolio models
Guido Giese applies the saddle-point approximation to analyse tail losses for very general credit portfolios, including correlated defaults, stochastic recovery rates, and dependency between default probabilities and recovery rates. The numerical approach...
Credit and basket default swaps
We evaluate extreme value distribution models for the time to default distribution embedded in market credit default swap quotes. Two distribution classes, the Weibull and Frechet, are considered and it is observed that though both are adequate, the Weibull...
Wrong way risk modelling
Beyond its potential impact on counterparty risk exposure, the wrong way risk arising in some derivatives transactions raises important modelling challenges. Christian Redon presents two suitable models based on conditional expected exposure. Among straightforward...
Capital structure arbitrage and market timing under uncertainty and...
Classical structural models of a firm’s equity and debt are based on the assumption that the price of claims on the firm’s assets depends solely and uniquely on a set of underlying state variables such as the market value of the firm’s assets, as...
The pricing implications of counterparty risk for non-linear credit...
We describe a methodology for deriving the upper and lower profit and loss (P&L) bounds in the presence of counterparty risk that does not rely on either structural or reduced-form credit models. The methodology provides practitioners and regulators with...
Linear and non-linear credit scoring by combining logistic regression...
The Basel II capital accord encourages banks to develop internal rating models that are financially intuitive, easily interpretable and optimally predictive for default. Standard linear logistic models are very easily readable but have limited model flexibility....
Practical and theoretical challenges in validating Basel parameters...
This paper, inspired by the efforts of a Canadian bank, discusses Basel preparation and validation issues. A comprehensive outcomes analysis (eg, back-testing) framework is presented, including a simulation-based calibration test. A consistent risk rating...
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