Technical papers/Credit Risk
Credit default swap spreads, fair-value spreads and interest rate dynamics...
This paper examines the empirical relationship between credit risk and interest rate risk. We use credit default swap (CDS) spreads as our measure of credit risk. Also, we control for the variation in...
The objective of this paper is to help a bank originator of a collateralized debt obligation (CDO) to build a maximally profitable CDO. We consider an optimization framework for structuring CDOs. The objective...
Overrides of credit ratings are important correctives of ratings that are determined by statistical rating models. Financial institutions and banking regulators agree on this because, on the one hand,...
Using market and credit risk analytics to strengthen performance
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More Technical papers/Credit Risk articles
Calibration of structural and reduced-form recovery models
In current credit risk models, default probabilities and recovery rates are often treated independently. However, when the structural connection between these quantities is neglected, the risk of large portfolio losses can be underestimated considerably....
The impossibility of DVA replication
Some have argued that the debit valuation adjustment – which measures the benefit to a bank from its own potential for default – is monetisable. They claim replication strategies involving the dealer buying its own bonds, or writing protection on...
The impossibility of DVA replication
Some have argued that the debit valuation adjustment – which measures the benefit to a bank from its own potential for default – is monetisable. They claim replication strategies involving the dealer buying its own bonds, or writing protection on...
Recursive formulas for the default probability distribution with applications...
The probability distribution of the number of defaults plays an important role in pricing problems of multiple-name credit derivatives. When the group size gets large, it becomes increasingly difficult to obtain its whole distribution. We use a financial...
Addendum to “Partial differential equation representations of derivatives...
This addendum corrects an error in the notation of earlier versions of our paper "Partial differential equation representations of derivatives with bilateral counterparty risk and funding costs" that appeared on SSRN in 2010 and in Volume 7, Issue 3 of...
An asset drop model as an alternative to the treatment of double defaults...
In 2005 the internal-ratings-based (IRB) approach of Basel II was enhanced by a "treatment of double default effects" to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several caveats...
A survey of loan credit default swap pricing models
The loan credit default swap (LCDS) was originally designed as an alternative to the traditional credit default swap (CDS) due to its effectiveness in hedging the underlying loans. However, there do not appear to be standard acceptable modeling approaches...
How can investment banks use grid technology?
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Technology can provide a competitive advantage in banking. How it is applied by Tier 1 and Tier 2 institutions, to the benefit for their risk management systems, is discussed.
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