Table of Contents

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

Reviews

This is an outstanding book on the default models that are used internally by financial institutions. This practical book delves into the mathematics, the assumptions and the approximations that practitioners apply to make these models work." - Glyn A Holton of 'Contingency Analysis'