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Specification Analysis Of Structural Credit Risk Models
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Book Synopsis Specification Analysis of Structural Credit Risk Models by : Jing-Zhi Huang
Download or read book Specification Analysis of Structural Credit Risk Models written by Jing-Zhi Huang and published by . This book was released on 2019 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical studies of structural credit risk models so far are often based on calibration, rolling estimation, or regressions. This paper proposes a GMM-based method that allows us to both consistently estimate the model parameters and test whether all the restrictions of the model are satisfied. We conduct a specification analysis of five representative structural models based on the proposed GMM procedure, using information from both equity volatility and term structures of single-name credit default swap (CDS) spreads. Our test results strongly reject the Merton (1974) model and two diffusion-based models with a constant default boundary. The other two models, one with jumps and one with stationary leverage ratios, do improve the overall fit of CDS spreads and equity volatility. However, all five models have difficulty capturing the dynamic behavior of both equity volatility and CDS spreads, especially for investment-grade names. On the other hand, these models have a much better ability to explain the sensitivity of CDS spreads to equity returns.
Book Synopsis Specification Analysis of Structural Credit Risk Models by : Jing-zhi Huang
Download or read book Specification Analysis of Structural Credit Risk Models written by Jing-zhi Huang and published by . This book was released on 2008 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Credit Risk: Modeling, Valuation and Hedging by : Tomasz R. Bielecki
Download or read book Credit Risk: Modeling, Valuation and Hedging written by Tomasz R. Bielecki and published by Springer Science & Business Media. This book was released on 2013-03-14 with total page 517 pages. Available in PDF, EPUB and Kindle. Book excerpt: The motivation for the mathematical modeling studied in this text on developments in credit risk research is the bridging of the gap between mathematical theory of credit risk and the financial practice. Mathematical developments are covered thoroughly and give the structural and reduced-form approaches to credit risk modeling. Included is a detailed study of various arbitrage-free models of default term structures with several rating grades.
Book Synopsis Structural Credit Risk Models by : Mads Gjedsted Nielsen
Download or read book Structural Credit Risk Models written by Mads Gjedsted Nielsen and published by LAP Lambert Academic Publishing. This book was released on 2011-02 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: Three different credit risk models are presented, implemented, and calibrated to real data. Each of which presents a different way to model the dynamics of a firm. To better examine their differences, the models are benchmarked against the much celebrated Merton's model. Generally it is shown that structural credit risk models have empirical validity. However, all is not perfect. Since structural credit risk models may have two objectives. One being to accurately predict credit spreads, and another to determine the optimal capital structure. It is argued that if the goal is the former, then future structural models need to incorporate a more exible framework that can price the many di erent types of bonds that make up a company s debt simultaneously. However, if the objective is the latter, then the future models need to better account for the high costs linked with capital restructures in times of nancial distress.
Book Synopsis Credit Risk Modeling using Excel and VBA by : Gunter Löeffler
Download or read book Credit Risk Modeling using Excel and VBA written by Gunter Löeffler and published by John Wiley & Sons. This book was released on 2011-01-31 with total page 372 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is common to blame the inadequacy of credit risk models for the fact that the financial crisis has caught many market participants by surprise. On closer inspection, though, it often appears that market participants failed to understand or to use the models correctly. The recent events therefore do not invalidate traditional credit risk modeling as described in the first edition of the book. A second edition is timely, however, because the first dealt relatively briefly with instruments featuring prominently in the crisis (CDSs and CDOs). In addition to expanding the coverage of these instruments, the book will focus on modeling aspects which were of particular relevance in the financial crisis (e.g. estimation error) and demonstrate the usefulness of credit risk modelling through case studies. This book provides practitioners and students with an intuitive, hands-on introduction to modern credit risk modelling. Every chapter starts with an explanation of the methodology and then the authors take the reader step by step through the implementation of the methods in Excel and VBA. They focus specifically on risk management issues and cover default probability estimation (scoring, structural models, and transition matrices), correlation and portfolio analysis, validation, as well as credit default swaps and structured finance. The book has an accompanying website, https://creditriskmodeling.wordpress.com/, which has been specially updated for this Second Edition and contains slides and exercises for lecturers.
Book Synopsis Quality Control for Structural Credit Risk Models by : Elena Andreou
Download or read book Quality Control for Structural Credit Risk Models written by Elena Andreou and published by . This book was released on 2012 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the last four decades, a large number of structural models have been developed to estimate and price credit risk. The focus of the paper is on a much neglected issue pertaining to fundamental shifts in the structural parameters governing default. We propose formal quality control procedures that allow risk managers to monitor fundamental shifts in the structural parameters of credit risk models. The procedures are sequential - hence apply in real time. The basic ingredients are the key processes used in credit risk analysis, such as most prominently the Merton distance to default process as well as financial returns. Moreover, while we propose different monitoring processes, we also show that one particular process is optimal in terms of minimal detection time of a break in the drift process and relates to the Radon-Nikodym derivative for a change of measure.
Book Synopsis Advanced Credit Risk Analysis by : Didier Cossin
Download or read book Advanced Credit Risk Analysis written by Didier Cossin and published by John Wiley & Sons. This book was released on 2001 with total page 384 pages. Available in PDF, EPUB and Kindle. Book excerpt: Advanced Credit Analysis presents the latest and most advanced modelling techniques in the theory and practice of credit risk pricing and management. The book stresses the logic of theoretical models from the structural and the reduced-form kind, their applications and extensions. It shows the mathematical models that help determine optimal collateralisation and marking-to-market policies. It looks at modern credit risk management tools and the current structuring techniques available with credit derivatives.
Download or read book Credit Risk written by Niklas Wagner and published by CRC Press. This book was released on 2008-05-28 with total page 600 pages. Available in PDF, EPUB and Kindle. Book excerpt: Featuring contributions from leading international academics and practitioners, Credit Risk: Models, Derivatives, and Management illustrates how a risk management system can be implemented through an understanding of portfolio credit risks, a set of suitable models, and the derivation of reliable empirical results. Divided into six sectio
Book Synopsis Assessing Default Probabilities from Structural Credit Risk Models by : Wei Wang
Download or read book Assessing Default Probabilities from Structural Credit Risk Models written by Wei Wang and published by . This book was released on 2008 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study the empirical performance of structural credit risk models by examining the default probabilities calculated from these models with different time horizons. The parameters of the models are estimated from firm's bond and equity prices. The models studied include Merton (1974), Merton model with stochastic interest rate, Longstaff and Schwartz (1995), Leland and Toft (1996) and Collin-Dufresne and Goldstein (2001). The sample firms chosen are those that have only one bond outstanding when bond prices are observed. We first find that when the Maximum Likelihood estimation, introduced in Duan (1994), is used to estimate the Merton model from bond prices, the estimated volatility is unreasonable high and the estimation process does not converge for most of the firms in our sample. This shows that the Merton (1974) is not able to generate high yields to match the empirical observations. On the other hand, when equity prices are used as input we find that the default probabilities predicted for investment-grade firms by Merton (1974) are all close to zero. When stochastic interest rates are assumed in Merton model, the model performance is improved. The models of Longstaff and Schwartz (1995) with constant interest rate as well as the Leland and Toft (1996) provide quite reasonable predictions on real default probabilities when compared with those reported by Moody's and Samp;P. However, Collin-Dufresnce and Goldstein (2001) predict unreasonably high default probabilities for longer time horizons.
Book Synopsis Standard & Poor's Fundamentals of Corporate Credit Analysis by : Blaise Ganguin
Download or read book Standard & Poor's Fundamentals of Corporate Credit Analysis written by Blaise Ganguin and published by McGraw Hill Professional. This book was released on 2004-12-22 with total page 462 pages. Available in PDF, EPUB and Kindle. Book excerpt: An up-to-date, accurate framework for credit analysis and decision making, from the experts at Standard & Poor's "In a world of increasing financial complexity and shorter time frames in which to assess the wealth or dearth of information, this book provides an invaluable and easily accessible guide of critical building blocks of credit analysis to all credit professionals." --Apea Koranteng, Global Head, Structured Capital Markets, ABN AMRO "The authors do a fine job of combining latest credit risk management theory and techniques with real-life examples and practical application. Whether a seasoned credit expert or a new student of credit, this is a must read book . . . a critical part of anyone's risk management library." --Mark T. Williams, Boston University, Finance and Economics Department "At a time when credit risk is managed in a way more and more akin to market risk, Fundamentals of Corporate Credit Analysis provides well-needed support, not only for credit analysts but also for practitioners, portfolio managers, CDO originators, and others who need to keep track of the creditworthiness of their fixed-income investments." --Alain Canac, Chief Risk Officer, CDC IXIS Fundamentals of Corporate Credit Analysis provides professionals with the knowledge they need to systematically determine the operating and financial strength of a specific borrower, understand credit risks inherent in a wide range of corporate debt instruments, and then rank the default risk of that borrower. Focusing on fundamental credit risk, cash flow modeling, debt structure analysis, and other important issues, and including separate chapters on country risks, industry risks, business risks, financial risks, and management, it guides the reader through every step of traditional fundamental credit analysis. In a dynamic corporate environment, credit analysts cannot rely solely on financial statistical analysis, credit prediction models, or bond and stock price movements. Instead, a corporate credit analysis must supply loan providers and investors with more information and detail than ever before. On top of its traditional objective of assessing a firm's capacity and willingness to pay its financial obligations in a timely manner, a worthy credit analysis is now expected to assess recovery prospects of specific financial obligations should a firm become insolvent. Fundamentals of Corporate Credit Analysis provides practitioners with the knowledge and tools they need to address these changing requirements. Drawing on the unmatched global resources and capabilities of Standard & Poor's, this valuable book organizes its guidelines into three distinct components: Part I: Corporate Credit Risk helps analysts identify all the essential risks related to a particular firm, and measure the firm through both a financial forecast and benchmarking with peers Part II: Credit Risk of Debt Instruments explains the impact of debt instruments and debt structures on a firm's recovery prospects should it become insolvent Part III: Measuring Credit Risk presents a scoring system to assess the capacity and willingness of a firm to repay its debt in a timely fashion and to evaluate recovery prospects in the event of financial distress In addition, a fourth component--Cases in Credit Analysis--examines seven real-life studies to provide examples of the book's theory and procedures in practice. Senior Standard & Poor's analysts explore diverse cases ranging from North and South America to Europe and the Pacific Rim, on topics covering mergers (AT&T-Comcast, MGM-Mirage, Kellogg-Keebler), foreign ownership in a merger (Air New Zealand-Ansett-Singapore Airlines), sovereign issues (Repsol-YPF), peer comparisons (U.S. forestry), and recovery analysis (Yell LBO). Industry "Keys to Success" are identified and analyzed in each case, along with an explanation on how to interpret performance and come to a credit decision. While it is still true that ultimate credit decisions are highly subjective in nature, methodologies and thought processes can be repeatable from case to case. Fundamentals of Corporate Credit Analysis provides analysts with the knowledge and tools they need to systematically analyze a company, identify and analyze the most important factors in determining its creditworthiness, and ensure that more "science" than "art" is used in making the final credit decision.
Download or read book Credit Risk written by Darrell Duffie and published by Princeton University Press. This book was released on 2012-01-12 with total page 415 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this book, two of America's leading economists provide the first integrated treatment of the conceptual, practical, and empirical foundations for credit risk pricing and risk measurement. Masterfully applying theory to practice, Darrell Duffie and Kenneth Singleton model credit risk for the purpose of measuring portfolio risk and pricing defaultable bonds, credit derivatives, and other securities exposed to credit risk. The methodological rigor, scope, and sophistication of their state-of-the-art account is unparalleled, and its singularly in-depth treatment of pricing and credit derivatives further illuminates a problem that has drawn much attention in an era when financial institutions the world over are revising their credit management strategies. Duffie and Singleton offer critical assessments of alternative approaches to credit-risk modeling, while highlighting the strengths and weaknesses of current practice. Their approach blends in-depth discussions of the conceptual foundations of modeling with extensive analyses of the empirical properties of such credit-related time series as default probabilities, recoveries, ratings transitions, and yield spreads. Both the "structura" and "reduced-form" approaches to pricing defaultable securities are presented, and their comparative fits to historical data are assessed. The authors also provide a comprehensive treatment of the pricing of credit derivatives, including credit swaps, collateralized debt obligations, credit guarantees, lines of credit, and spread options. Not least, they describe certain enhancements to current pricing and management practices that, they argue, will better position financial institutions for future changes in the financial markets. Credit Risk is an indispensable resource for risk managers, traders or regulators dealing with financial products with a significant credit risk component, as well as for academic researchers and students.
Book Synopsis Reduced Form vs. Structural Models of Credit Risk by : Navneet Arora
Download or read book Reduced Form vs. Structural Models of Credit Risk written by Navneet Arora and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we empirically compare two structural models (basic Merton and Vasicek-Kealhofer (VK)) and one reduced-form model (Hull-White (HW)) of credit risk. We propose here that two useful purposes for credit models are default discrimination and relative value analysis. We test the ability of the Merton and VK models to discriminate defaulters from non-defaulters based on default probabilities generated from information in the equity market. We test the ability of the HW model to discriminate defaulters from non-defaulters based on default probabilities generated from information in the bond market. We find the VK and the HW models exhibit comparable accuracy ratios as well as substantially outperform the simple Merton model. We also test the ability of each model to predict spreads in the credit default swap (CDS) market as an indication of each model's strength as a relative value analysis tool. We find the VK model tends to do the best across the full sample and relative sub-samples except for cases where an issuer has many bonds in the market. In this case, the HW model tends to do the best. The empirical evidence will assist market participants in determining which model is most useful based on their purpose in hand. On the structural side, a basic Merton model is not good enough; appropriate modifications to the framework make a difference. On the reduced-form side, the quality and quantity of data make a difference; many traded issuers will not be well modeled in this way unless they issue more traded debt. In addition, bond spreads at shorter tenors (less than two years) tend to be less correlated with CDS spreads. This makes accurate calibration of the term-structure of credit risk difficult from bond data.
Book Synopsis Introduction to Credit Risk Modeling by : Christian Bluhm
Download or read book Introduction to Credit Risk Modeling written by Christian Bluhm and published by CRC Press. This book was released on 2016-04-19 with total page 386 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contains Nearly 100 Pages of New MaterialThe recent financial crisis has shown that credit risk in particular and finance in general remain important fields for the application of mathematical concepts to real-life situations. While continuing to focus on common mathematical approaches to model credit portfolios, Introduction to Credit Risk Modelin
Book Synopsis Structural Credit Risk Models by : Mike Lauer-Grigore
Download or read book Structural Credit Risk Models written by Mike Lauer-Grigore and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Implementing Structural Credit Risk Models Using Both Stock and Bond Prices - an Empirical Study by : Joel Reneby
Download or read book Implementing Structural Credit Risk Models Using Both Stock and Bond Prices - an Empirical Study written by Joel Reneby and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Reduced form credit risk models are often thought to be better suited for pricing corporate bonds than structural models. In this paper we challenge this view; by conditioning not only on equity but also on bond and dividend information, our structural model performs well in comparison to previously tested reduced form models. Moreover, we consider pricing of bond portfolios and show that model errors are to a large extent diversifiable.
Book Synopsis Structural Credit Risk Models with Incomplete Information about the Firm's Assets by : Melanie Ilg
Download or read book Structural Credit Risk Models with Incomplete Information about the Firm's Assets written by Melanie Ilg and published by . This book was released on 2003 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis An Empirical Evaluation of Structural Credit Risk Models by : Nikola A. Tarashev
Download or read book An Empirical Evaluation of Structural Credit Risk Models written by Nikola A. Tarashev and published by . This book was released on 2005 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper evaluates empirically the performance of six structural credit risk models by comparing the probabilities of default (PDs) they deliver to ex post default rates. In contrast to previous studies pursuing similar objectives, the paper employs firm-level data and finds that theory-based PDs tend to match closely the actual level of credit risk and to account for its time path. At the same time, nonmodelled macro variables from the financial and real sides of the economy help to substantially improve the forecasts of default rates. The finding suggests that theory-based PDs fail to fully reflect the dependence of credit risk on the business and credit cycles. Most of the upbeat conclusions regarding the performance of the PDs are due to models with endogenous default. For their part, frameworks that assume exogenous default tend to underpredict credit risk. Three borrower characteristics influence materially the predictions of the models: the leverage ratio; the default recovery rate; and the risk-free rate of return.
