Table of Contents

Introduction 1. The Objectives of the Credit Risk Process 2. The Asian Crisis: Lessons for Maximizing Risk adjusted Shareholder Value 3. The Evolution of Credit Modeling Techniques 4. Credit Risk Models: The Impact of Macro Factors on the Risk of Default 5. Internal Ratings and Approaches to Testing Credit Models 6. Tests of Credit Models using Historical Default Data 7. Market Data Tests of Credit Models: Lessons from Enron and Other Case Studies 8. Out of Sample Testing of Credit Models 9. Implications of the Tests for the Basel Accords and Management of Financial Institutions 10. Measuring Safety and Soundness and Capital Allocation Using the Merton and Reduced Form Models 11. Impact of Collateral on Valuation Models 12. Pricing and Valuing Revolving Credit and Other Loan Agreements 13. Credit Derivatives and Collateralized Debt Obligations 14. Future Developments in Credit Modeling Index

About the Author

Donald R. Van Deventer founded the Kamakura Corporation in April 1990 and is currently President. He has been involved in financial advisory assignments involving both risk management and mergers and acquisitions, for the municipalities affected in the Orange County bankruptcy, in a major derivatives dispute between JPMorgan and a Korean securities firm, Bank Negara Malaysia, ITT Financial Corporation and many other leading institutions. Prior to founding Kamakura Corporation, he was Senior Vice President of in the investment banking department of Lehman Brothers (then Shearson Lehman Hutton). From 1982 to 1987, he was the treasurer for First Interstate Bancorp in LA, USA. He holds a Ph.D. in Business Economics, a joint degree of the Harvard University Department of Economics and the Harvard Graduate School of Business Administration. Kenji Imai heads Software Development for Kamakura and participates in selected Japan related financial advisory assignments. A member of the Managing Committee of Kamakura, he is fluent in both Japanese and English. Prior to Kamakura, Mr. Imai worked in credit analysis in the Foreign Exchange Group of the Sanwa Bank, Hibiya Branch. He was later transferred to the headquarters where as a member of the Planning Section, he was responsible for risk management on interest and currency products. Following his two years at MIT, he returned to the Derivatives Group at Sanwa where he developed interest rate term structure models for pricing exotic options and managing interest rate derivative products, and applied quantitative methods for swaps and options analysis. He graduated from the University of Tokyo with a B.S. in Civil Engineering and from the Sloan School of the Massachusetts Institute of Technology with a M.S. in Management, concentrating in finance.