What is a credit risk
|
|
- Gladys Hall
- 5 years ago
- Views:
Transcription
1 Credit risk
2 What is a credit risk Definition of credit risk risk of loss resulting from the fact that a borrower or counterparty fails to fulfill its obligations under the agreed terms (because they either cannot or do not want to pay) Credit risk also includes Sovereign risk Concentration risk Settlement risk Counterparty risk
3 What is a credit risk What does credit risk concern: Loans and receivables (Debt) securities Guarantees issued Promises for granting a loan / undrawn credit facilities Derivatives
4 he most important terms Credit event Default (= fail to repay, this has nothing with a default option in I!) Credit rating migration Expected loss (EL): EL = PD LGD ED PD = probability of default LGD = loss given default ED = exposure at default RR = recovery rate (RR = 1 - LGD) Expected loss is covered by revenues (interest rate, fees) and by loan loss provisions (based on the level of expected impairment)
5 he most important terms Unexpected loss and credit loss distribution Unexpected loss is covered by capital
6 he most important terms Moody's S&P Fitch Prime aa a1 + + High grade a2 a Upper medium grade Baa1 BBB+ BBB+ Lower medium grade Baa2 BBB BBB Baa3 BBB- BBB- Ba1 BB+ BB+ Non-investment grade speculative Ba2 BB BB Ba3 BB- BB- B1 B+ B+ Highly speculative B2 B B B3 B- B- Substantial risks Caa1 CCC+ Extremely speculative Caa2 CCC Caa3 CCC- CCC In default with little prospect for recovery CC Ca C C DDD In default D DD D Source: Wikipedia
7 he most important terms Source: Fitch, November
8 Problematic issues he lack of available data (adverse selection problem) Correlations (between failures as well as between the parameters) Wrong way exposure (growing utilization of credit cards in case of an increase in PD) In case of deterioration of the situation, both the PD and LGD may worsen Concentration risk should be taken into account in the loan portfolio Systemic risk (drop in real estate prices will negatively affect the whole construction industry; the impact of changes in FX rates for exporters) Contagion risk Backtesting he loss distribution has fat tails and is not symmetric
9 ypes of models Structural models ssumption: the default is caused by a decrease in asset value below some threshold (i.e. the value of debt) Stochastic model of asset prices Reduced-form models he defaults are assumed to be stochastic and their distribution might depend on a number of external factors (GDP growth, inflation, unemployment, interest rates etc.) he most important models: Merton model / KMV CreditMetrics CreditRisk + CreditPortfolioView Regulatory approach (single risk factor model)
10 Merton model Structural model he model of PD is based on the structure of the balance sheet Basic assumptions: t = the asset value is assumed to be stochastic (geometric Brownian motion) D t = debt is represented by one zero coupon bond maturing at time, hence D t = e -r(-t) D E t = equity is the difference between assets and debt (E t = t D) Basic idea: If D, then E = D If < D, the company bankrupts and E = 0 (limited liability of stockholders). Summary: E = ( D ) +, hence equity is a call option held by the company owners, where the underlying is the company as a whole and strike price = D.
11 Merton model he value of assets he value of debt
12 Merton model Stochastic process of asset value: W t Wiener process d t = μ t + σ t dw t Consequence: ln t je z N(ln t, ) 0 2 t Probability of default: P( D ) P(ln ln D ) ln D
13 KMV model Model used by Moody s KMV = Kealhofer, McQuown & Vašíček Several improvements of the Merton model It allows for a more complex structure of the debt hreshold for default is estimated as the short-term debt + one half of the long term debt he assumption of normal distribution is not required, Moody s uses an empirical relationship between so-called distance to default (DD) and the expected default frequency (EDF), where 1 2 ln DD D 0 2
14 KMV model wo issues he values of and D are only available with a low frequency (only financial/accounting statements are published). heoretically, should be a real value of assets but the only available value is the accounting value, which might differ significantly Solution: he value of parameter μ is calculated from the published financial reports he value of equity (E t ) is known daily (number of shares price) E t is the option price which can be represented by Black-Scholes formula d ln E t r( t) t ( d1, t ) e D ( d2, t ) r Iteration procedure: Calculate time series of t for the chosen initial value of σ Estimate new value of σ and repeat the iteration procedure t ( t) t 1 2 D 2 1, t, d 2, t d 1, t t
15 Merton / KMV model Weaknesses he default threshold is set arbitrarily he model can only by applied to companies listed and traded on an exchange he EDF value are too sensitive to changes in equity prices It is challenging to calculate the EDF without the normality of assumption (the construction of an empirical distribution faces significant data limitations) Systemic risk is not captured at all Data based on the financial statements of companies are seriously delayed and has a low frequency References diploma thesis defended on EFM. Pišková (2004): Modelovanie portfólia dlhopisov s uvažovaním rizika defaultu K. Kadlečíká (2009): Ocenenie Credit default swapov a porovnanie ich vývoja v čase finančnej krízy
Credit Risk in Banking
Credit Risk in Banking CREDIT RISK MODELS Sebastiano Vitali, 2017/2018 Merton model It consider the financial structure of a company, therefore it belongs to the structural approach models Notation: E
More informationA Guide to Investing In Corporate Bonds
A Guide to Investing In Corporate Bonds Access the corporate debt income portfolio TABLE OF CONTENTS What are Corporate Bonds?... 4 Corporate Bond Issuers... 4 Investment Benefits... 5 Credit Quality and
More informationCredit Risk Modelling: A Primer. By: A V Vedpuriswar
Credit Risk Modelling: A Primer By: A V Vedpuriswar September 8, 2017 Market Risk vs Credit Risk Modelling Compared to market risk modeling, credit risk modeling is relatively new. Credit risk is more
More informationStructural Models in Credit Valuation: The KMV experience. Oldrich Alfons Vasicek NYU Stern, November 2012
Structural Models in Credit Valuation: The KMV experience Oldrich Alfons Vasicek NYU Stern, November 2012 KMV Corporation A financial technology firm pioneering the use of structural models for credit
More informationLuis Seco University of Toronto
Luis Seco University of Toronto seco@math.utoronto.ca The case for credit risk: The Goodrich-Rabobank swap of 1983 Markov models A two-state model The S&P, Moody s model Basic concepts Exposure, recovery,
More informationAmath 546/Econ 589 Introduction to Credit Risk Models
Amath 546/Econ 589 Introduction to Credit Risk Models Eric Zivot May 31, 2012. Reading QRM chapter 8, sections 1-4. How Credit Risk is Different from Market Risk Market risk can typically be measured directly
More informationQuantifying credit risk in a corporate bond
Quantifying credit risk in a corporate bond Srichander Ramaswamy Head of Investment Analysis Beatenberg, September 003 Summary of presentation What is credit risk? Probability of default Recovery rate
More informationSlides for Risk Management Credit Risk
Slides for Risk Management Credit Risk Groll Seminar für Finanzökonometrie Prof. Mittnik, PhD Groll (Seminar für Finanzökonometrie) Slides for Risk Management Prof. Mittnik, PhD 1 / 97 1 Introduction to
More informationINVESTMENTS Class 17: The Credit Market Part 1: Modeling Default Risk. Spring 2003
15.433 INVESTMENTS Class 17: The Credit Market Part 1: Modeling Default Risk Spring 2003 The Corporate Bond Market 25 20 15 10 5 0-5 -10 Apr-71 Apr-73 Mortgage Rates (Home Loan Mortgage Corporation) Jan-24
More informationFixed Income Update: Structuring Portfolios for a Rising Interest Rate Environment
Fixed Income Update: Structuring Portfolios for a Rising Interest Rate Environment February 16, 2017 Thomas S. Sawyer Sawyer Falduto Asset Management, LLC 630-941-8560 tsawyer@sawyerfalduto.com Introduction
More informationNational Ratings Definitions
National Ratings Definitions AM Best Rating Descriptor Definition A++ Superior Assigned to companies that have, in our opinion, a superior ability to meet their ongoing insurance obligations. A++ Superior
More informationIntroduction Credit risk
A structural credit risk model with a reduced-form default trigger Applications to finance and insurance Mathieu Boudreault, M.Sc.,., F.S.A. Ph.D. Candidate, HEC Montréal Montréal, Québec Introduction
More informationRisk and Term Structure of Interest Rates
Risk and Term Structure of Interest Rates Economics 301: Money and Banking 1 1.1 Goals Goals and Learning Outcomes Goals: Explain factors that can cause interest rates to be different for bonds of different
More informationFixed income for your portfolio
Fixed income for your portfolio November 2017 2 Fixed income for your portfolio Defence Fixed income investments such as bonds are widely used in portfolios to enhance income and compliment low risk interest
More informationPortugal. Main Economic Indicators
Portugal Main Economic Indicators January, 2016 Contents 1 - Macroeconomic Indicators 2 - Macroeconomic Indicators - Forecasts 3 - Gross Value Added 4 - Employment 5 - Risk Indicators 1. Macroeconomic
More informationCREDIT RATINGS. Rating Agencies: Moody s and S&P Creditworthiness of corporate bonds
CREDIT RISK CREDIT RATINGS Rating Agencies: Moody s and S&P Creditworthiness of corporate bonds In the S&P rating system, AAA is the best rating. After that comes AA, A, BBB, BB, B, and CCC The corresponding
More informationFinancial Literacy Series Investing
Financial Literacy Series Investing January 31, 2018 Robert Turnquest, CFA, CAIA Agenda What is investing? Types of investments Stocks Bonds Mutual funds Developing your personal portfolio Risk vs. return
More informationCALIFORNIA BONDS: 101
CALIFORNIA BONDS: 101 A Citizen s Guide to General Obligation Bonds 2016 EDITION JOHN CHIANG CALIFORNIA STATE TREASURER SECTION 1 BONDS 101: Q&A Q. What is a municipal bond? A. A bond is a loan. There
More informationRating of European sovereign bonds and its impact on credit default swaps (CDS) and government bond yield spreads
Rating of European sovereign bonds and its impact on credit default swaps (CDS) and government bond yield spreads Supervised by: Prof. Günther Pöll Diploma Presentation Plass Stefan B.A. 21 th October
More informationPortugal. Main Economic Indicators
Portugal Main Economic Indicators September, 2018 Contents 1 - Macroeconomic Indicators 2 - Macroeconomic Indicators - Forecasts 3 - Gross Value Added 4 - Employment 5 - Risk Indicators 1. Macroeconomic
More informationMaturity as a factor for credit risk capital
Maturity as a factor for credit risk capital Michael Kalkbrener Λ, Ludger Overbeck y Deutsche Bank AG, Corporate & Investment Bank, Credit Risk Management 1 Introduction 1.1 Quantification of maturity
More informationRHB Bank Berhad. Basel II Pillar 3 Quantitative Disclosures 30 th June 2011 Consolidated basis
RHB Bank Berhad Basel II Pillar 3 Quantitative Disclosures 30 th June 2011 Consolidated basis RHB Bank Group Basel II Pillar 3 Quantitative Disclosures 30 th June 2011 Pillar 3 Disclosure Contents Page
More informationBASEL II & III IMPLEMENTATION FRAMEWORK. Gift Chirozva Chief Bank Examiner Bank Licensing, Supervision & Surveillance Reserve Bank of Zimbabwe
BASEL II & III IMPLEMENTATION 1 FRAMEWORK Gift Chirozva Chief Bank Examiner Bank Licensing, Supervision & Surveillance Reserve Bank of Zimbabwe email: gchirozva@rbz.co.zw 9/16/2016 giftezh@gmail.com Outline
More informationULSTER UNIVERSITY TREASURY MANAGEMENT POLICY
ULSTER UNIVERSITY TREASURY MANAGEMENT POLICY DOCUMENT CONTROL Document Title Treasury Management Policy Document Version V2.0 Custodian Chief Finance Officer Author Head of Financial Management Approving
More informationFirm Heterogeneity and Credit Risk Diversification
Firm Heterogeneity and Credit Risk Diversification Samuel G. Hanson* M. Hashem Pesaran Harvard Business School University of Cambridge and USC Til Schuermann* Federal Reserve Bank of New York and Wharton
More informationTreasury Policy. Purpose of this policy:
Purpose of this policy: The purpose of this policy is to set out appropriate parameters as deemed fit by the Board for ELEXON s banking arrangements, in order to minimise counterparty risk, while delivering
More informationOnline Appendix. In this section, we rerun our main test with alternative proxies for the effect of revolving
Online Appendix 1. Addressing Scaling Issues In this section, we rerun our main test with alternative proxies for the effect of revolving rating analysts. We first address the possibility that our main
More informationFinancial Statements: Theory Regulated Utility Financial Analysis Financial Statements Cost of Capital Asset Valuation
Financial Statements: Theory Regulated Utility Financial Analysis Financial Statements Cost of Capital Asset Valuation Kirk Megginson, Financial Specialist Regulated Energy Division, Financial Analysis
More informationEconomics 173A and Management 183 Financial Markets
Economics 173A and Management 183 Financial Markets Fixed Income Securities: Bonds Bonds Debt Security corporate or government borrowing Also called a Fixed Income Security Covenants or Indenture define
More informationThe Merton Model. A Structural Approach to Default Prediction. Agenda. Idea. Merton Model. The iterative approach. Example: Enron
The Merton Model A Structural Approach to Default Prediction Agenda Idea Merton Model The iterative approach Example: Enron A solution using equity values and equity volatility Example: Enron 2 1 Idea
More informationCopyright 2004 Pearson Education, Inc. All rights reserved. Bonds
Copyright 2004 Pearson Education, Inc. All rights reserved. Bonds What is a Bond? Debt securities that may pay a rate of interest based upon the face amount or par value of the bond Bond investors receive
More informationIV SPECIAL FEATURES ASSESSING PORTFOLIO CREDIT RISK IN A SAMPLE OF EU LARGE AND COMPLEX BANKING GROUPS
C ASSESSING PORTFOLIO CREDIT RISK IN A SAMPLE OF EU LARGE AND COMPLEX BANKING GROUPS In terms of economic capital, credit risk is the most significant risk faced by banks. This Special Feature implements
More informationChapter 11. Section 2: Bonds & Other Financial Assets
Chapter 11 Section 2: Bonds & Other Financial Assets Bonds as Financial Assets Bonds are basically loans, or IOUs, that represent debt that the government or a corporation must repay to an investor. Typically
More informationProbability Default in Black Scholes Formula: A Qualitative Study
Journal of Business and Economic Development 2017; 2(2): 99-106 http://www.sciencepublishinggroup.com/j/jbed doi: 10.11648/j.jbed.20170202.15 Probability Default in Black Scholes Formula: A Qualitative
More informationMarkit iboxx EUR Rating Rules
Markit iboxx EUR Rating Rules April 2010 Contents 1 Rating... 3 2 Rating Cut-Off Dates... 3 3 Markit iboxx Average Rating - Methodology... 3 4 Further information... 5 2 1 Rating All bonds in the Markit
More informationMorningstar Fixed-Income Style Box TM
? Morningstar Fixed-Income Style Box TM Morningstar Methodology Effective Apr. 30, 2019 Contents 1 Fixed-Income Style Box 4 Source of Data 5 Appendix A 10 Recent Changes Introduction The Morningstar Style
More informationPMA Securities, Inc. September 14, 2015
Robert E. Lewis III PMA Securities, Inc. September 14, 2015 Credit Rating Scales and Definitions Moody's S&P Fitch Kroll Aaa AAA AAA AAA Extremely strong capacity to meet financial obligations. Aa1 AA+
More informationCounterparty Credit Risk Simulation
Counterparty Credit Risk Simulation Alex Yang FinPricing http://www.finpricing.com Summary Counterparty Credit Risk Definition Counterparty Credit Risk Measures Monte Carlo Simulation Interest Rate Curve
More information2.4 Industrial implementation: KMV model. Expected default frequency
2.4 Industrial implementation: KMV model Expected default frequency Expected default frequency (EDF) is a forward-looking measure of actual probability of default. EDF is firm specific. KMV model is based
More informationING MVA ANNUITY A Single Premium Deferred Annuity (Standard Form # Nonqualified; may vary by state and not available in all states.
An Annuity Illustration using ING MVA ANNUITY (Standard Form #03502 8-00 Nonqualified; may vary by state and not available in all states.) Designed for: Mr. Wise Presented by: Financial Professional..,
More informationWhat makes bonds marketable... or not! And - a program that can help. Patrick Rutledge, AVP / Public Finance Relationship Manager FHLBank Atlanta
What makes bonds marketable... or not! And - a program that can help. Patrick Rutledge, AVP / Public Finance Relationship Manager FHLBank Atlanta 1 Disclaimer Certain information contained herein has been
More informationAnnual Investment Policy of the Pooled Investment Fund
SACRAMENTO COUNTY Annual Investment Policy of the Pooled Investment Fund CALENDAR YEAR 2017 Approved by the Sacramento County Board of Supervisors December 6, 2016 Resolution No. 2016-0938 Table of Contents
More informationSection 3 describes the data for portfolio construction and alternative PD and correlation inputs.
Evaluating economic capital models for credit risk is important for both financial institutions and regulators. However, a major impediment to model validation remains limited data in the time series due
More informationSUMITOMO MITSUI BANKING CORPORATION MALAYSIA BERHAD (Incorporated in Malaysia)
(Incorporated in Malaysia) S 1. OVERVIEW The Pillar 3 Disclosure for financial reporting beginning 1 January 2010 is introduced under the Bank Negara Malaysia's Risk-Weighted Capital Adequacy Framework
More informationSupplementary Notes on the Financial Statements (continued)
The Hongkong and Shanghai Banking Corporation Limited Supplementary Notes on the Financial Statements 2013 Contents Supplementary Notes on the Financial Statements (unaudited) Page Introduction... 2 1
More informationSenior Floating Rate Loans: The Whole Story
Senior Floating Rate Loans: The Whole Story Mutual fund shares are not guaranteed or insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an
More informationIRC / stressed VaR : feedback from on-site examination
IRC / stressed VaR : feedback from on-site examination EIFR seminar, 7 February 2012 Mary-Cécile Duchon, Isabelle Thomazeau CCRM/DCP/SGACP-IG 1 Contents 1. IRC 2. Stressed VaR 2 IRC definition Incremental
More informationEconomi Capital. Tiziano Bellini. Università di Bologna. November 29, 2013
Economi Capital Tiziano Bellini Università di Bologna November 29, 2013 Tiziano Bellini (Università di Bologna) Economi Capital November 29, 2013 1 / 16 Outline Framework Economic Capital Structural approach
More informationCredit Modeling and Credit Derivatives
IEOR E4706: Foundations of Financial Engineering c 2016 by Martin Haugh Credit Modeling and Credit Derivatives In these lecture notes we introduce the main approaches to credit modeling and we will largely
More informationUTILITY SYSTEM IMPROVEMENT FINANCING
UTILITY SYSTEM IMPROVEMENT FINANCING Stauder, Barch & Associates Ann Arbor 1 UTILITY SYSTEM FINANCING OPTIONS POSSIBLE FUNDING SOURCES Utility System Reserves Grants Bond Financing (Including SRF) Installment
More informationEstimating Economic Capital for Private Equity Portfolios
Estimating Economic Capital for Private Equity Portfolios Mark Johnston, Macquarie Group 22 September, 2008 Today s presentation What is private equity and how is it different to public equity and credit?
More informationRole of the Rating Agency. Pete McGinnis August 3, 2007
Role of the Rating Agency Pete McGinnis August 3, 2007 Presentation Outline What is a Nationally Recognized Statistical Rating Organization ( NRSRO ) The role of a rating agency in a bond deal and the
More informationExternal data will likely be necessary for most banks to
CAPITAL REQUIREMENTS Estimating Probability of Default via External Data Sources: A Step Toward Basel II Banks considering their strategies for compliance with the Basel II Capital Accord will likely use
More informationPillar 3 Disclosures. Quantitative Disclosures As at 31 December 2015
Pillar 3 Disclosures Quantitative Disclosures As at 31 December 2015 DBS Group Holdings Ltd Incorporated in the Republic of Singapore Company Registration Number: 199901152M Content Page Introduction...
More informationContents. Supplementary Notes on the Financial Statements (unaudited)
The Hongkong and Shanghai Banking Corporation Limited Supplementary Notes on the Financial Statements 2015 Contents Supplementary Notes on the Financial Statements (unaudited) Page Introduction... 2 1
More informationThe University of Chicago, Booth School of Business Business 41202, Spring Quarter 2012, Mr. Ruey S. Tsay. Solutions to Final Exam
The University of Chicago, Booth School of Business Business 41202, Spring Quarter 2012, Mr. Ruey S. Tsay Solutions to Final Exam Problem A: (40 points) Answer briefly the following questions. 1. Consider
More informationLife Insurer Financial Profile
Life Insurer Financial Profile Company New York Life Ins Massachusetts Transamerica Life John Hancock Life & Mutual of Omaha Genworth Life Ins MedAmerica Ins Co Co Mutual Life Ins Ins Co Health Ins Ins
More informationMACQUARIE BANK PILLAR 3 DISCLOSURES SEPTEMBER 2010
MACQUARIE BANK PILLAR 3 DISCLOSURES SEPTEMBER 2010 MACQUARIE BANK LIMITED ACN 008 583 542 Cover image: A stylised contemporary version of the Holey Dollar In 1813 Governor Lachlan Macquarie overcame an
More informationThe Black-Scholes Model
The Black-Scholes Model Liuren Wu Options Markets Liuren Wu ( c ) The Black-Merton-Scholes Model colorhmoptions Markets 1 / 18 The Black-Merton-Scholes-Merton (BMS) model Black and Scholes (1973) and Merton
More informationCAPITAL RESERVING FOR CREDIT RISK FOR INSURERS (LIFE & GI) AND OTHER INSTITUTIONS
CAPITAL RESERVING FOR CREDIT RISK FOR INSURERS (LIFE & GI) AND OTHER INSTITUTIONS OVERVIEW IAAUST CONVENTION, COOLUM MAY 2003 Credit risk is a large and multifaceted subject that is impacting increasingly
More informationStructural Models. Paola Mosconi. Bocconi University, 9/3/2015. Banca IMI. Paola Mosconi Lecture 3 1 / 65
Structural Models Paola Mosconi Banca IMI Bocconi University, 9/3/2015 Paola Mosconi Lecture 3 1 / 65 Disclaimer The opinion expressed here are solely those of the author and do not represent in any way
More informationSupplementary Notes on the Financial Statements (continued)
The Hongkong and Shanghai Banking Corporation Limited Supplementary Notes on the Financial Statements 2014 Contents Supplementary Notes on the Financial Statements (unaudited) Page Introduction... 2 1
More informationTopQuants. Integration of Credit Risk and Interest Rate Risk in the Banking Book
TopQuants Integration of Credit Risk and Interest Rate Risk in the Banking Book 1 Table of Contents 1. Introduction 2. Proposed Case 3. Quantifying Our Case 4. Aggregated Approach 5. Integrated Approach
More informationChapter 5. Valuing Bonds
Chapter 5 Valuing Bonds 5-2 Topics Covered Bond Characteristics Reading the financial pages after introducing the terminologies of bonds in the next slide (p.119 Figure 5-2) Bond Prices and Yields Bond
More informationCredit Risk. João Pedro Pereira. Teaching notes. Nova School of Business and Economics Universidade Nova de Lisboa
Credit Risk Teaching notes João Pedro Pereira Nova School of Business and Economics Universidade Nova de Lisboa joao.pereira@novasbe.pt March 27, 2018 Contents 1 Foundations for Credit Risk Modelling 5
More informationECONOMIC AND REGULATORY CAPITAL
ECONOMIC AND REGULATORY CAPITAL Bank Indonesia Bali 21 September 2006 Presented by David Lawrence OpRisk Advisory Company Profile Copyright 2004-6, OpRisk Advisory. All rights reserved. 2 DISCLAIMER All
More information1. CREDIT RISK. Ratings. Default probability. Risk premium. Recovery Rate
. CEDIT ISK. atings. Default probability. isk premium. ecovery ate Credit risk arises from the variability of future returns, values, cash flows, earnings and other stated goals caused by changes in credit
More informationGOLDMAN SACHS BANK (EUROPE) PLC
AS AT 31 DECEMBER 2009 GOLDMAN SACHS BANK (EUROPE) PLC PILLAR 3 DISCLOSURES Table of Contents 1. Overview 1 2. Basel II and Pillar 3 1 3. Scope of Pillar 3 1 4. Capital Resources and Capital Requirements
More informationCredit Risk II. Bjørn Eraker. April 12, Wisconsin School of Business
Wisconsin School of Business April 12, 2012 More on Credit Risk Ratings Spread measures Specific: Bloomberg quotes for Best Buy Model of credit migration Ratings The three rating agencies Moody s, Fitch
More information2006 Bank Indonesia Seminar on Financial Stability. Bali, September 2006
Economic Capital 2006 Bank Indonesia Seminar on Financial Stability Bali, 21-22 September 2006 Charles Freeland Deputy Secretary General IRB approaches - Historical Default Rates High correlation between
More informationJuly 2015 Private Client Advisor Alert
Whole Life Dividend Interest Rates for 2015 Near the end of each calendar year, mutual insurance companies declare their dividend interest rates on participating whole life (WL) insurance policies for
More informationCredit Ratings and Securitization
Credit Ratings and Securitization Bachelier Congress June 2010 John Hull 1 Agenda To examine the derivatives that were created from subprime mortgages To determine whether the criteria used by rating agencies
More informationRISK MANAGEMENT IS IT NECESSARY?
RISK MANAGEMENT IS IT NECESSARY? Credit Risk Management - Fundamentals, Practical Challenges & Methodologies While financial institutions have faced difficulties over the years for a multitude of reasons,
More informationMACQUARIE BANK PILLAR 3 DISCLOSURES SEPTEMBER 2011
MACQUARIE BANK PILLAR 3 DISCLOSURES SEPTEMBER 2011 MACQUARIE BANK LIMITED ACN 008 583 542 Cover image: A stylised contemporary version of the Holey Dollar In 1813 Governor Lachlan Macquarie overcame an
More informationStructural Models IV
Structural Models IV Implementation and Empirical Performance Stephen M Schaefer London Business School Credit Risk Elective Summer 2012 Outline Implementing structural models firm assets: estimating value
More informationAbstract. Key words: Maturity adjustment, Capital Requirement, Basel II, Probability of default, PD time structure.
Direct Calibration of Maturity Adjustment Formulae from Average Cumulative Issuer-Weighted Corporate Default Rates, Compared with Basel II Recommendations. Authors: Dmitry Petrov Postgraduate Student,
More informationThe Black-Scholes Model
The Black-Scholes Model Liuren Wu Options Markets (Hull chapter: 12, 13, 14) Liuren Wu ( c ) The Black-Scholes Model colorhmoptions Markets 1 / 17 The Black-Scholes-Merton (BSM) model Black and Scholes
More information(i) Pillar 1 Outlines the minimum regulatory capital that banking institutions must hold against the credit, market and operational risks assumed.
Industrial and Commercial Bank of China (Malaysia) Berhad (Company No. 839839 M) (Incorporated in Malaysia) 1 Risk-Weighted Capital Adequacy Framework (Basel II) Pillar 3 Disclosure 1.0 Overview The Pillar
More informationRISKS ASSOCIATED WITH INVESTING IN BONDS
RISKS ASSOCIATED WITH INVESTING IN BONDS 1 Risks Associated with Investing in s Interest Rate Risk Effect of changes in prevailing market interest rate on values. As i B p. Credit Risk Creditworthiness
More informationINVESTMENTS Class 2: Securities, Random Walk on Wall Street
15.433 INVESTMENTS Class 2: Securities, Random Walk on Wall Street Reto R. Gallati MIT Sloan School of Management Spring 2003 February 5th 2003 Outline Probability Theory A brief review of probability
More informationBASEL II PILLAR 3 DISCLOSURE
2012 BASEL II PILLAR 3 DISCLOSURE HALF YEAR ENDED 31 MARCH 2012 APS 330: CAPITAL ADEQUACY & RISK MANAGEMENT IN ANZ Important notice This document has been prepared by Australia and New Zealand Banking
More informationI. Asset Valuation. The value of any asset, whether it is real or financial, is the sum of all expected future earnings produced by the asset.
1 I. Asset Valuation The value of any asset, whether it is real or financial, is the sum of all expected future earnings produced by the asset. 2 1 II. Bond Features and Prices Definitions Bond: a certificate
More informationUniversity Debt Portfolio Review. September 24, 2008
University Debt Portfolio Review September 24, 2008 1. Debt Over Time 2. Estimated Project Detail 3. Affiliated Projects 4. Long-term Bond Ratings 5. Debt Capacity (Bond Rating) Factors 6. Key Ratio Methodology
More informationLecture notes on risk management, public policy, and the financial system Credit risk models
Lecture notes on risk management, public policy, and the financial system Allan M. Malz Columbia University 2018 Allan M. Malz Last updated: June 8, 2018 2 / 24 Outline 3/24 Credit risk metrics and models
More informationValidation Mythology of Maturity Adjustment Formula for Basel II Capital Requirement
Validation Mythology of Maturity Adjustment Formula for Basel II Capital Requirement Working paper Version 9..9 JRMV 8 8 6 DP.R Authors: Dmitry Petrov Lomonosov Moscow State University (Moscow, Russia)
More informationTW3421x - An Introduction to Credit Risk Management Default Probabilities Merton s Model - Part 1. Dr. Pasquale Cirillo.
TW3421x - An Introduction to Credit Risk Management Default Probabilities Merton s Model - Part 1 Dr. Pasquale Cirillo Week 5 Lesson 1 2 Introduction Introduced by R.C. Merton (1974). On the pricing of
More informationPANAFRICAN CREDIT RATING AGENCY. Tel: +(225) (225) Fax:+(225)
PANAFRICAN CREDIT RATING AGENCY Public Limited Company with a Board of Directors with a share capital of CFAF 100,000,000 Accredited by the Capital Market authority (CMA) of Rwanda Ref/CMA/July/3047/2015
More informationQueens College, CUNY, Department of Computer Science Computational Finance CSCI 365 / 765 Fall 2017 Instructor: Dr. Sateesh Mane.
Queens College, CUNY, Department of Computer Science Computational Finance CSCI 365 / 765 Fall 2017 Instructor: Dr. Sateesh Mane c Sateesh R. Mane 2017 14 Lecture 14 November 15, 2017 Derivation of the
More informationMarket Focus. Credit cycle: rising default rate. Where do we stand in the default rate cycle? Credit fundamentals are deteriorating
At the beginning of 215, we began forecasting the end of the credit cycle. Since then, corporate fundamentals, rating trends, and default rate data have all deteriorated. Moody s speculative default rate
More informationBond Valuation. Capital Budgeting and Corporate Objectives
Bond Valuation Capital Budgeting and Corporate Objectives Professor Ron Kaniel Simon School of Business University of Rochester 1 Bond Valuation An Overview Introduction to bonds and bond markets» What
More informationDEVIL IN THE PARAMETERS
DEVIL IN THE PARAMETERS H. Ugur KOYLUOGLU, Anil BANGIA, and Thomas GARSIDE Oliver, Wyman & Company 666 Fifth Avenue, 16 th Floor New York, New York 10103 Correspondence: ukoyluoglu@owc.com Working Paper
More informationAn Introduction to Bonds
An Introduction to Bonds Agenda Bond basics Different types of bonds Bond features Yield and tax considerations Bond risks Credit quality Bond investing strategies and client suitability Defining Characteristics
More informationStructural Models of Credit Risk and Some Applications
Structural Models of Credit Risk and Some Applications Albert Cohen Actuarial Science Program Department of Mathematics Department of Statistics and Probability albert@math.msu.edu August 29, 2018 Outline
More informationConcentration Risk in Credit Portfolios
Eva Liitkebohmert Concentration Risk in Credit Portfolios With 17 Figures and 19 Tables 4y Springer Contents Part I Introduction to Credit Risk Modeling 1 Risk Measurement 3 1.1 Variables of Risk 4 1.2
More informationModelling Credit Spread Behaviour. FIRST Credit, Insurance and Risk. Angelo Arvanitis, Jon Gregory, Jean-Paul Laurent
Modelling Credit Spread Behaviour Insurance and Angelo Arvanitis, Jon Gregory, Jean-Paul Laurent ICBI Counterparty & Default Forum 29 September 1999, Paris Overview Part I Need for Credit Models Part II
More informationStress Testing at Central Banks The case of Brazil
Stress Testing at Central Banks The case of Brazil CEMLA Seminar: PREPARACIÓN DE INFORMES DE ESTABILIDAD FINANCIERA October 2009 Fernando Linardi fernando.linardi@bcb.gov.br (55) 31 3253-7438 1 Agenda
More informationTW3421x - An Introduction to Credit Risk Management Default Probabilities Internal ratings and recovery rates. Dr. Pasquale Cirillo.
TW3421x - An Introduction to Credit Risk Management Default Probabilities Internal ratings and recovery rates Dr. Pasquale Cirillo Week 4 Lesson 3 Lack of rating? The ratings that are published by rating
More informationHigh Yield. LarrainVial Seminario Mercados Globales - Ideas Hans Stoter Head of Credit Investments ING Investment Management
High Yield Hans Stoter Head of Credit Investments ING Investment Management LarrainVial Seminario Mercados Globales - Ideas 2010 Santiago, Lima May 11 13, 2010 What is High Yield Corporate debt with rating
More informationHouse Committee on Oversight
House Committee on Oversight 38 Studios Moral Obligation Bond Repayment May 8, 2014 What is RIPEC? RIPEC is an independent, nonprofit and nonpartisan public policy research and education organization.
More informationCARRIER FINANCIAL STRENGTH RATINGS Financial ratings reflect an insurance company's claims paying ability
CARRIER FINANCIAL STRENGTH RATINGS Financial ratings reflect an insurance company's claims paying ability Source Carrier A.M. Best Standard & Poor s Moody s Fitch 1 Unum A A A2 A 2 John Hancock A+ AA-
More information