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Structural Modeling And Top Down Reduced Form Modeling For Multi Name Credit Derivatives
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Book Synopsis The Oxford Handbook of Credit Derivatives by : Alexander Lipton
Download or read book The Oxford Handbook of Credit Derivatives written by Alexander Lipton and published by OUP Oxford. This book was released on 2013-01-17 with total page 828 pages. Available in PDF, EPUB and Kindle. Book excerpt: From the late 1990s, the spectacular growth of a secondary market for credit through derivatives has been matched by the emergence of mathematical modelling analysing the credit risk embedded in these contracts. This book aims to provide a broad and deep overview of this modelling, covering statistical analysis and techniques, modelling of default of both single and multiple entities, counterparty risk, Gaussian and non-Gaussian modelling, and securitisation. Both reduced-form and firm-value models for the default of single entities are considered in detail, with extensive discussion of both their theoretical underpinnings and practical usage in pricing and risk. For multiple entity modelling, the now notorious Gaussian copula is discussed with analysis of its shortcomings, as well as a wide range of alternative approaches including multivariate extensions to both firm-value and reduced form models, and continuous-time Markov chains. One important case of multiple entities modelling - counterparty risk in credit derivatives - is further explored in two dedicated chapters. Alternative non-Gaussian approaches to modelling are also discussed, including extreme-value theory and saddle-point approximations to deal with tail risk. Finally, the recent growth in securitisation is covered, including house price modelling and pricing models for asset-backed CDOs. The current credit crisis has brought modelling of the previously arcane credit markets into the public arena. Lipton and Rennie with their excellent team of contributors, provide a timely discussion of the mathematical modelling that underpins both credit derivatives and securitisation. Though technical in nature, the pros and cons of various approaches attempt to provide a balanced view of the role that mathematical modelling plays in the modern credit markets. This book will appeal to students and researchers in statistics, economics, and finance, as well as practitioners, credit traders, and quantitative analysts
Book Synopsis Credit Risk Frontiers by : Tomasz Bielecki
Download or read book Credit Risk Frontiers written by Tomasz Bielecki and published by John Wiley & Sons. This book was released on 2011-02-14 with total page 770 pages. Available in PDF, EPUB and Kindle. Book excerpt: A timely guide to understanding and implementing credit derivatives Credit derivatives are here to stay and will continue to play a role in finance in the future. But what will that role be? What issues and challenges should be addressed? And what lessons can be learned from the credit mess? Credit Risk Frontiers offers answers to these and other questions by presenting the latest research in this field and addressing important issues exposed by the financial crisis. It covers this subject from a real world perspective, tackling issues such as liquidity, poor data, and credit spreads, as well as the latest innovations in portfolio products and hedging and risk management techniques. Provides a coherent presentation of recent advances in the theory and practice of credit derivatives Takes into account the new products and risk requirements of a post financial crisis world Contains information regarding various aspects of the credit derivative market as well as cutting edge research regarding those aspects If you want to gain a better understanding of how credit derivatives can help your trading or investing endeavors, then Credit Risk Frontiers is a book you need to read.
Book Synopsis Modelling Single-name and Multi-name Credit Derivatives by : Dominic O'Kane
Download or read book Modelling Single-name and Multi-name Credit Derivatives written by Dominic O'Kane and published by John Wiley & Sons. This book was released on 2011-03-08 with total page 515 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modelling Single-name and Multi-name Credit Derivatives presents an up-to-date, comprehensive, accessible and practical guide to the pricing and risk-management of credit derivatives. It is both a detailed introduction to credit derivative modelling and a reference for those who are already practitioners. This book is up-to-date as it covers many of the important developments which have occurred in the credit derivatives market in the past 4-5 years. These include the arrival of the CDS portfolio indices and all of the products based on these indices. In terms of models, this book covers the challenge of modelling single-tranche CDOs in the presence of the correlation skew, as well as the pricing and risk of more recent products such as constant maturity CDS, portfolio swaptions, CDO squareds, credit CPPI and credit CPDOs.
Book Synopsis Optimal Mean Reversion Trading: Mathematical Analysis And Practical Applications by : Tim Siu-tang Leung
Download or read book Optimal Mean Reversion Trading: Mathematical Analysis And Practical Applications written by Tim Siu-tang Leung and published by World Scientific. This book was released on 2015-11-26 with total page 221 pages. Available in PDF, EPUB and Kindle. Book excerpt: Optimal Mean Reversion Trading: Mathematical Analysis and Practical Applications provides a systematic study to the practical problem of optimal trading in the presence of mean-reverting price dynamics. It is self-contained and organized in its presentation, and provides rigorous mathematical analysis as well as computational methods for trading ETFs, options, futures on commodities or volatility indices, and credit risk derivatives.This book offers a unique financial engineering approach that combines novel analytical methodologies and applications to a wide array of real-world examples. It extracts the mathematical problems from various trading approaches and scenarios, but also addresses the practical aspects of trading problems, such as model estimation, risk premium, risk constraints, and transaction costs. The explanations in the book are detailed enough to capture the interest of the curious student or researcher, and complete enough to give the necessary background material for further exploration into the subject and related literature.This book will be a useful tool for anyone interested in financial engineering, particularly algorithmic trading and commodity trading, and would like to understand the mathematically optimal strategies in different market environments.
Book Synopsis Frontiers in Quantitative Finance by : Rama Cont
Download or read book Frontiers in Quantitative Finance written by Rama Cont and published by John Wiley & Sons. This book was released on 2009-03-09 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Petit D'euner de la Finance–which author Rama Cont has been co-organizing in Paris since 1998–is a well-known quantitative finance seminar that has progressively become a platform for the exchange of ideas between the academic and practitioner communities in quantitative finance. Frontiers in Quantitative Finance is a selection of recent presentations in the Petit D'euner de la Finance. In this book, leading quants and academic researchers cover the most important emerging issues in quantitative finance and focus on portfolio credit risk and volatility modeling.
Book Synopsis Mathematics in Finance by : Santiago Carrillo Menéndez
Download or read book Mathematics in Finance written by Santiago Carrillo Menéndez and published by American Mathematical Soc.. This book was released on 2010 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper by R. Zagst and M. Scherer is a short course on the different approaches used for pricing, hedging and risk management of credit derivatives. --
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 Expected Credit Loss Modeling from a Top-Down Stress Testing Perspective by : Mr.Marco Gross
Download or read book Expected Credit Loss Modeling from a Top-Down Stress Testing Perspective written by Mr.Marco Gross and published by International Monetary Fund. This book was released on 2020-07-03 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this paper is to present an integrated tool suite for IFRS 9- and CECL-compatible estimation in top-down solvency stress tests. The tool suite serves as an illustration for institutions wishing to include accounting-based approaches for credit risk modeling in top-down stress tests.
Book Synopsis Correlation Risk Modeling and Management by : Gunter Meissner
Download or read book Correlation Risk Modeling and Management written by Gunter Meissner and published by John Wiley & Sons. This book was released on 2013-12-19 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: A thorough guide to correlation risk and its growing importance in global financial markets Ideal for anyone studying for CFA, PRMIA, CAIA, or other certifications, Correlation Risk Modeling and Management is the first rigorous guide to the topic of correlation risk. A relatively overlooked type of risk until it caused major unexpected losses during the financial crisis of 2007 through 2009, correlation risk has become a major focus of the risk management departments in major financial institutions, particularly since Basel III specifically addressed correlation risk with new regulations. This offers a rigorous explanation of the topic, revealing new and updated approaches to modelling and risk managing correlation risk. Offers comprehensive coverage of a topic of increasing importance in the financial world Includes the Basel III correlation framework Features interactive models in Excel/VBA, an accompanying website with further materials, and problems and questions at the end of each chapter
Book Synopsis Structured Products and Related Credit Derivatives by : Brian P. Lancaster
Download or read book Structured Products and Related Credit Derivatives written by Brian P. Lancaster and published by John Wiley & Sons. This book was released on 2008-06-20 with total page 545 pages. Available in PDF, EPUB and Kindle. Book excerpt: Filled with the insights of numerous experienced contributors, Structured Products and Related Credit Derivatives takes a detailed look at the various aspects of structured assets and credit derivatives. Written over a period spanning the greatest bull market in structured products history to arguably its most challenging period, this reliable resource will help you identify the opportunities and mitigate the risks in this complex financial market.
Book Synopsis Credit Risk Pricing Models by : Bernd Schmid
Download or read book Credit Risk Pricing Models written by Bernd Schmid and published by Springer Science & Business Media. This book was released on 2012-11-07 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit Risk Pricing Models - now in its second edition - gives a deep insight into the latest basic and advanced credit risk modelling techniques covering not only the standard structural, reduced form and hybrid approaches but also showing how these methods can be applied to practice. The text covers a broad range of financial instruments, including all kinds of defaultable fixed and floating rate debt, credit derivatives and collateralised debt obligations.This volume will be a valuable source for the financial community involved in pricing credit linked financial instruments. In addition, the book can be used by students and academics for a comprehensive overview of the most important credit risk modelling issues.
Book Synopsis International Convergence of Capital Measurement and Capital Standards by :
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Credit Default Swaps by : Marti Subrahmanyam
Download or read book Credit Default Swaps written by Marti Subrahmanyam and published by Now Publishers. This book was released on 2014-12-19 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit Default Swaps: A Survey is the most comprehensive review of all major research domains involving credit default swaps (CDS). CDS have been growing in importance in the global financial markets. However, their role has been hotly debated, in industry and academia, particularly since the credit crisis of 2007-2009. The authors review the extant literature on CDS that has accumulated over the past two decades and divide the survey into seven topics after providing a broad overview in the introduction. The second section traces the historical development of CDS markets and provides an introduction to CDS contract definitions and conventions. The third section discusses the pricing of CDS, from the perspective of no-arbitrage principles, structural, and reduced-form credit risk models. It also summarizes the literature on the determinants of CDS spreads, with a focus on the role of fundamental credit risk factors, liquidity and counterparty risk. The fourth section discusses how the development of the CDS market has affected the characteristics of the bond and equity markets, with an emphasis on market efficiency, price discovery, information flow, and liquidity. Attention is also paid to the CDS-bond basis, the wedge between the pricing of the CDS and its reference bond, and the mispricing between the CDS and the equity market. The fifth section examines the effect of CDS trading on firms' credit and bankruptcy risk, and how it affects corporate financial policy, including bond issuance, capital structure, liquidity management, and corporate governance. The sixth section analyzes how CDS impact the economic incentives of financial intermediaries. The seventh section reviews the growing literature on sovereign CDS and highlights the major differences between the sovereign and corporate CDS markets. The eighth section discusses CDS indices, especially the role of synthetic CDS index products backed by residential mortgage-backed securities during the financial crisis. The authors close with our suggestions for promising future research directions on CDS contracts and markets.
Book Synopsis Optimization-Based Models for Measuring and Hedging Risk in Fixed Income Markets by : Johan Hagenbjörk
Download or read book Optimization-Based Models for Measuring and Hedging Risk in Fixed Income Markets written by Johan Hagenbjörk and published by Linköping University Electronic Press. This book was released on 2019-12-09 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global fixed income market is an enormous financial market whose value by far exceeds that of the public stock markets. The interbank market consists of interest rate derivatives, whose primary purpose is to manage interest rate risk. The credit market primarily consists of the bond market, which links investors to companies, institutions, and governments with borrowing needs. This dissertation takes an optimization perspective upon modeling both these areas of the fixed-income market. Legislators on the national markets require financial actors to value their financial assets in accordance with market prices. Thus, prices of many assets, which are not publicly traded, must be determined mathematically. The financial quantities needed for pricing are not directly observable but must be measured through solving inverse optimization problems. These measurements are based on the available market prices, which are observed with various degrees of measurement noise. For the interbank market, the relevant financial quantities consist of term structures of interest rates, which are curves displaying the market rates for different maturities. For the bond market, credit risk is an additional factor that can be modeled through default intensity curves and term structures of recovery rates in case of default. By formulating suitable optimization models, the different underlying financial quantities can be measured in accordance with observable market prices, while conditions for economic realism are imposed. Measuring and managing risk is closely connected to the measurement of the underlying financial quantities. Through a data-driven method, we can show that six systematic risk factors can be used to explain almost all variance in the interest rate curves. By modeling the dynamics of these six risk factors, possible outcomes can be simulated in the form of term structure scenarios. For short-term simulation horizons, this results in a representation of the portfolio value distribution that is consistent with the realized outcomes from historically observed term structures. This enables more accurate measurements of interest rate risk, where our proposed method exhibits both lower risk and lower pricing errors compared to traditional models. We propose a method for decomposing changes in portfolio values for an arbitrary portfolio into the risk factors that affect the value of each instrument. By demonstrating the method for the six systematic risk factors identified for the interbank market, we show that almost all changes in portfolio value and portfolio variance can be attributed to these risk factors. Additional risk factors and approximation errors are gathered into two terms, which can be studied to ensure the quality of the performance attribution, and possibly improve it. To eliminate undesired risk within trading books, banks use hedging. Traditional methods do not take transaction costs into account. We, therefore, propose a method for managing the risks in the interbank market through a stochastic optimization model that considers transaction costs. This method is based on a scenario approximation of the optimization problem where the six systematic risk factors are simulated, and the portfolio variance is weighted against the transaction costs. This results in a method that is preferred over the traditional methods for all risk-averse investors. For the credit market, we use data from the bond market in combination with the interbank market to make accurate measurements of the financial quantities. We address the notoriously difficult problem of separating default risk from recovery risk. In addition to the previous identified six systematic risk factors for risk-free interests, we identify four risk factors that explain almost all variance in default intensities, while a single risk factor seems sufficient to model the recovery risk. Overall, this is a higher number of risk factors than is usually found in the literature. Through a simple model, we can measure the variance in bond prices in terms of these systematic risk factors, and through performance attribution, we relate these values to the empirically realized variances from the quoted bond prices. De globala ränte- och kreditmarknaderna är enorma finansiella marknader vars sammanlagda värden vida överstiger de publika aktiemarknadernas. Räntemarknaden består av räntederivat vars främsta användningsområde är hantering av ränterisker. Kreditmarknaden utgörs i första hand av obligationsmarknaden som syftar till att förmedla pengar från investerare till företag, institutioner och stater med upplåningsbehov. Denna avhandling fokuserar på att utifrån ett optimeringsperspektiv modellera både ränte- och obligationsmarknaden. Lagstiftarna på de nationella marknaderna kräver att de finansiella aktörerna värderar sina finansiella tillgångar i enlighet med marknadspriser. Därmed måste priserna på många instrument, som inte handlas publikt, beräknas matematiskt. De finansiella storheter som krävs för denna prissättning är inte direkt observerbara, utan måste mätas genom att lösa inversa optimeringsproblem. Dessa mätningar görs utifrån tillgängliga marknadspriser, som observeras med varierande grad av mätbrus. För räntemarknaden utgörs de relevanta finansiella storheterna av räntekurvor som åskådliggör marknadsräntorna för olika löptider. För obligationsmarknaden utgör kreditrisken en ytterligare faktor som modelleras via fallissemangsintensitetskurvor och kurvor kopplade till förväntat återvunnet kapital vid eventuellt fallissemang. Genom att formulera lämpliga optimeringsmodeller kan de olika underliggande finansiella storheterna mätas i enlighet med observerbara marknadspriser samtidigt som ekonomisk realism eftersträvas. Mätning och hantering av risker är nära kopplat till mätningen av de underliggande finansiella storheterna. Genom en datadriven metod kan vi visa att sex systematiska riskfaktorer kan användas för att förklara nästan all varians i räntekurvorna. Genom att modellera dynamiken i dessa sex riskfaktorer kan tänkbara utfall för räntekurvor simuleras. För kortsiktiga simuleringshorisonter resulterar detta i en representation av fördelningen av portföljvärden som väl överensstämmer med de realiserade utfallen från historiskt observerade räntekurvor. Detta möjliggör noggrannare mätningar av ränterisk där vår föreslagna metod uppvisar såväl lägre risk som mindre prissättningsfel jämfört med traditionella modeller. Vi föreslår en metod för att dekomponera portföljutvecklingen för en godtycklig portfölj till de riskfaktorer som påverkar värdet för respektive instrument. Genom att demonstrera metoden för de sex systematiska riskfaktorerna som identifierats för räntemarknaden visar vi att nästan all portföljutveckling och portföljvarians kan härledas till dessa riskfaktorer. Övriga riskfaktorer och approximationsfel samlas i två termer, vilka kan användas för att säkerställa och eventuellt förbättra kvaliteten i prestationshärledningen. För att eliminera oönskad risk i sina tradingböcker använder banker sig av hedging. Traditionella metoder tar ingen hänsyn till transaktionskostnader. Vi föreslår därför en metod för att hantera riskerna på räntemarknaden genom en stokastisk optimeringsmodell som också tar hänsyn till transaktionskostnader. Denna metod bygger på en scenarioapproximation av optimeringsproblemet där de sex systematiska riskfaktorerna simuleras och portföljvariansen vägs mot transaktionskostnaderna. Detta resulterar i en metod som, för alla riskaverta investerare, är att föredra framför de traditionella metoderna. På kreditmarknaden använder vi data från obligationsmarknaden i kombination räntemarknaden för att göra noggranna mätningar av de finansiella storheterna. Vi angriper det erkänt svåra problemet att separera fallissemangsrisk från återvinningsrisk. Förutom de tidigare sex systematiska riskfaktorerna för riskfri ränta, identifierar vi fyra riskfaktorer som förklarar nästan all varians i fallissemangsintensiteter, medan en enda riskfaktor tycks räcka för att modellera återvinningsrisken. Sammanlagt är detta ett större antal riskfaktorer än vad som brukar användas i litteraturen. Via en enkel modell kan vi mäta variansen i obligationspriser i termer av dessa systematiska riskfaktorer och genom prestationshärledningen relatera dessa värden till de empiriskt realiserade varianserna från kvoterade obligationspriser.
Download or read book Risk written by and published by . This book was released on 2003 with total page 706 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Term-Structure Models by : Damir Filipovic
Download or read book Term-Structure Models written by Damir Filipovic and published by Springer Science & Business Media. This book was released on 2009-07-28 with total page 259 pages. Available in PDF, EPUB and Kindle. Book excerpt: Changing interest rates constitute one of the major risk sources for banks, insurance companies, and other financial institutions. Modeling the term-structure movements of interest rates is a challenging task. This volume gives an introduction to the mathematics of term-structure models in continuous time. It includes practical aspects for fixed-income markets such as day-count conventions, duration of coupon-paying bonds and yield curve construction; arbitrage theory; short-rate models; the Heath-Jarrow-Morton methodology; consistent term-structure parametrizations; affine diffusion processes and option pricing with Fourier transform; LIBOR market models; and credit risk. The focus is on a mathematically straightforward but rigorous development of the theory. Students, researchers and practitioners will find this volume very useful. Each chapter ends with a set of exercises, that provides source for homework and exam questions. Readers are expected to be familiar with elementary Itô calculus, basic probability theory, and real and complex analysis.
Book Synopsis The Structured Credit Handbook by : Arvind Rajan
Download or read book The Structured Credit Handbook written by Arvind Rajan and published by John Wiley & Sons. This book was released on 2007-03-31 with total page 544 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Structured Credit Handbook is a comprehensive introduction to all types of credit-linked financial instruments. This book provides state-of-the-art primers on single tranche collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), credit derivatives (such as credit default swaps and swaptions), and iBoxx indexes. Filled with in-depth insight and expert advice, The Structured Credit Handbook covers all aspects of the synthetic arbitrage CDO market, including new instruments such as CDO2. Readers will also gain a firm understanding of the investment rationale, risks, and rewards associated with CDO investments through this valuable resource. The exploding use of credit derivatives and collateralized debt obligations (CDOs) has transformed the world of credit, creating an $18 trillion market almost overnight and resulting in innumerable investment and career opportunities globally. The Structured Credit Handbook provides the reader with a comprehensive and clear roadmap to today's new credit landscape. The full spectrum of structured credit products, from single-name CDS to CDOs, is explained in a simple, clear fashion that is free from the financial jargon and mathematical complexity which characterize many other derivative texts. The handbook begins with an in-depth explanation of the building blocks of the structured credit markets, single-name default swaps and indexes, and it culminates with complex products such as credit options, synthetic tranches, CDOs based on bank loans and asset-backed securities, and CDO-squareds. Written by experienced practitioners who have participated in this market since its infancy, each of the thirteen chapters introduces and analyzes a new product and explains its practical applications. A rich set of real-life case studies illustrate the application of each product in a concrete market setting. The book may be used in a semester-long course on structured credit as part of a business or finance curriculum. Whether you are a market professional, a university student or faculty member, or simply a financially savvy layperson, look no further for an up-to-date and thorough introduction to this rapidly growing and exciting field. Dr. Arvind Rajan, Managing Director, Citigroup Global Markets, is engaged in proprietary trading of Structured Credit products, and until recently, was global head of Structured Credit Research and Strategy at Citigroup. Glen McDermott (New York, NY) is Director of Fixed Income Sales and the former head of CDO Research at Citigroup Global Markets Inc. Ratul Roy is head of CDO Strategy for Citigroup Global Markets and has spent the prior nine years in structuring or analyzing CDOs and other structured credit products.
