An Introduction to Credit Risk Modeling

THE BASICS OF CREDIT RISK MANAGEMENT Expected Loss Unexpected Loss Regulatory Capital and the Basel Initiative MODELLING CORRELATED DEFAULTS The Bernoulli Model The Poisson Model Bernoulli Versus Poisson Mixture An Overview of Today's Industry Models One-Factor/Sector Models Loss Distributions by Means of Copula Functions Working Example: Estimation of Asset Correlations ASSET VALUE MODELS Introduction and A Small Guide to the Literature A Few Words About Calls and Puts Merton's Asset Value Model Transforming Equity into Asset Values: A Working Approach THE CREDITRISK+ MODEL The Modeling Framework of CreditRisk+ Construction Step 1: Independent Obligors Construction Step 2: Sector Model ALTERNATIVE RISK MEASURES AND CAPITAL ALLOCATION Coherent Risk Measures and Conditional Shortfall Contributory Capital TERM STRUCTURE OF DEFAULT PROBABILITY Survival Function and Hazard Rate Risk-neutral vs. Actual Default Probabilities Term Structure Based on Historical Default Information 3. Term Structure Based on Market Spreads CREDIT DERIVATIVES Total Return Swaps Credit Default Products Basket Credit Derivatives Credit Spread Products Credit-Linked Notes COLLATERALIZED DEBT OBLIGATIONS Introduction to Collateralized Debt Obligations Different Roles of Banks in the CDO Market CDOs from the Modeling Point of View Rating Agency Models: Moody's BET Conclusion Some Remarks on the Literature Remarks REFERENCES