Credit Risk Pricing Models: Theory and Practice

ISBN-13: 9783642073359 / Angielski / Miękka / 2011 / 383 str.

Bernd Schmid

Opis

This new edition is a greatly extended and updated version of my earlier monograph "Pricing Credit Linked Financial Instruments" (Schmid 2002). Whereas the first edition concentrated on the re search which I had done in the context of my PhD thesis, this second edition covers all important credit risk models and gives a general overview of the subject. I put a lot of effort in explaining credit risk factors and show the latest results in default probability and recovery rate modeling. There is a special emphasis on correlation issues as well. The broad range of financial instruments I consider covers not only defaultable bonds, defaultable swaps and single counterparty credit derivatives but is further extended by multi counterparty in struments like index swaps, basket default swaps and collateralized debt obligations. I am grateful to Springer-Verlag for the great support in the realiza tion of this project and want to thank the readers of the first edition for their overwhelming feedback. Last but not least I want to thank Uli Goser for ongoing patience, en couragement, and support, my family and especially my sister Wendy for being there at all times. BemdSchmid Stuttgart, November 2003 Cpntents 1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1. 1 Motivation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1. 2 Objectives, Structure, and S: ummary . . . . . . . . . . . . . . . . . . . . . . 5 2. Modeling Credit Risk Factors. . . . . . . . . . . . . . . . . . . . . . . 13 . . . . . . 2. 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2. 2 Definition and Elements of Credit Risk . . . . . . . . . . . . . . . . 13 . . . . 2. 3 Modeling Transition and Default Probabilities. . . . . . . . . . . . . 14 . 2. 3. 1 The Historical Method . . . . . . . . . . . . . . . . . . . . . . 15 . . . . . ."

Spis treści

1. Introduction.- 1.1 Motivation.- 1.2 Objectives, Structure, and Summary.- 2. Modeling Credit Risk Factors.- 2.1 Introduction.- 2.2 Definition and Elements of Credit Risk.- 2.3 Modeling Transition and Default Probabilities.- 2.3.1 The Historical Method.- 2.3.2 Excursus: Some Fundamental Mathematics.- 2.3.3 The Asset Based Method.- 2.3.4 The Intensity Based Method.- 2.3.5 Adjusted Default Probabilities.- 2.4 Modeling Recovery Rates.- 2.4.1 Definition of Recovery Rates.- 2.4.2 The Impact of Seniority.- 2.4.3 The Impact of the Industry.- 2.4.4 The Impact of the Business Cycle.- 2.4.5 LossCalcTM: Moody’s Model for Predicting Recovery Rates.- 3. Pricing Corporate and Sovereign Bonds.- 3.1 Introduction.- 3.1.1 Defaultable Bond Markets.- 3.1.2 Pricing Defaultable Bonds.- 3.2 Asset Based Models.- 3.2.1 Merton’s Approach and Extensions.- 3.2.2 First Passage Time Models.- 3.3 Intensity Based Models.- 3.3.1 Short Rate Type Model.- 4. Correlated Defaults.- 4.1 Introduction.- 4.2 Correlated Asset Values.- 4.3 Correlated Default Intensities.- 4.4 Correlation and Copula Functions.- 5. Credit Derivatives.- 5.1 Introduction to Credit Derivatives.- 5.2 Technical Definitions.- 5.3 Single Counterparty Credit Derivatives.- 5.3.1 Credit Options.- 5.3.2 Credit Spread Products.- 5.3.3 Credit Default Products.- 5.3.4 Par and Market Asset Swaps.- 5.3.5 Other Credit Derivatives.- 5.4 Multi Counterparty Credit Derivatives.- 5.4.1 Index Swaps.- 5.4.2 Basket Default Swaps.- 5.4.3 Collateralized Debt Obligations (CDOs).- 6. A Three-Factor Defaultable Term Structure Model.- 6.1 Introduction.- 6.1.1 A New Model For Pricing Default able Bonds.- 6.2 The Three-Factor Model.- 6.2.1 The Basic Setup.- 6.2.2 Valuation Formulas For Contingent Claims.- 6.3 The Pricing of Defaultable Fixed and Floating Rate Debt.- 6.3.1 Introduction.- 6.3.2 Defaultable Discount Bonds.- 6.3.3 Defaultable (Non-Callable) Fixed Rate Debt.- 6.3.4 Defaultable Callable Fixed Rate Debt.- 6.3.5 Building a Theoretical Framework for Pricing One-Party Defaultable Interest Rate Derivatives.- 6.3.6 Defaultable Floating Rate Debt.- 6.3.7 Defaultable Interest Rate Swaps.- 6.4 The Pricing of Credit Derivatives.- 6.4.1 Some Pricing Issues.- 6.4.2 Credit Options.- 6.4.3 Credit Spread Options.- 6.4.4 Default Swaps and Default Options.- 6.5 A Discrete-Time Version of the Three-Factor Model.- 6.5.1 Introduction.- 6.5.2 Constructing the Lattice.- 6.5.3 General Interest Rate Dynamics.- 6.6 Fitting the Model to Market Data.- 6.6.1 Introduction.- 6.6.2 Method of Least Squared Minimization.- 6.6.3 The Kalman Filtering Methodology.- 6.7 Portfolio Optimization under Credit Risk.- 6.7.1 Introduction.- 6.7.2 Optimization.- 6.7.3 Case Study: Optimizing a Sovereign Bond Portfolio.- A. Some Definitions of S&P.- A.1 Definition of Credit Ratings.- A.1.1 Issue Credit Ratings.- A.1.2 Issuer Credit Ratings.- A.2 Definition of Default.- A.2.1 S&P’s definition of corporate default.- A.2.2 S&P’s definition of sovereign default.- B. Technical Proofs.- B.1 Proof of Lemma 6.2.1.- B.3 Proofs of Lemma 6.3.1 and Lemma 6.4.2.- B.4 Proof of Lemma 6.4.3.- B.5 Tools for Pricing Non-Defaultable Contingent Claims.- C. Pricing of Credit Derivatives: Extensions.- List of Figures.- List of Tables.- References.

O autorze

Bernd Schmidt, Dr. phil., studierte Wirtschaftwissenschaften und promovierte in Erziehungswissenschaften und Psychologie. Weiterbildungen in Körpertherapie, Gestalttherapie, Gesprächspsychotherapie, Transaktionsanalyse und systemischer Familientherapie sowie Fortbildungen in NLP und Hypnose. Lehrtrainer der internationalen Transaktionsanalyse-Gesellschaft und anderer Gesellschaften im Bereich Psychotherapie, Coaching, Supervision, systemische Beratung sowie Organisations- und Personalentwicklung. Gründer und Leiter des Instituts für systemische Beratung in Wiesloch (seit 1984). Bernd Schmid ist Mitgründer und Vorsitzender des Präsidiums des Deutschen Bundesverbands Coaching (DBVC), Gründer und langjähriger Vorsitzender der Gesellschaft für Weiterbildung und Supervision (GWS) sowie Mitgründer des forum humanum. Zahlreiche Veröffentlichungen in Schrift und Ton. 2007 Preisträger des Eric Berne Memorial Award der International Transactional Analysis Association (ITAA).