The risk that a borrower will default on any type of debt by failing to make required payments and that the corresponding lender suffers a loss.

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What makes IRC a market risk?

Since modeling leaves complete freedom we can assume both market and credit risks can enter the picture. However the minimum requirement is (migrations and) defaults simulation, how does this ...
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187 views

Calibration Merton Jump-Diffusion

Consider the following SDE $dV_t = rV_tdt +\sigma V_t dW_t + dJ_t$ where $J_t$ is a Compound poisson process with log-Normal jump size $Y_i$. How am I supposed to calibrate this model to CDS spreads?...
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23 views

Data of Credit Migration Matrices

Please advise that how to get the data of credit migration matrices There is a paper of credit migration matrices, I would import the data to Matlab or R for credit analysis. https://www....
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52 views

Calculating the CVA of a Forward Contract

I am having trouble calculating the CVA of a forward contract. The question is presented below Question: There exists a long forwards position underlying on gold with 2 years remaining. The ...
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55 views

Modelling the Cost of Risk

I would like to read something about the cost of risk. Could anyone recommend some reference about how it is calculated or modelled?
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472 views

credit risk - How to calculate the probability of default (private companies)?

Part of my master thesis I am working with a company. I have the project to use their financial database with all the financials data (7 years) of approximately 3’000 companies. They have their own ...
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30 views

conferences for credit portfolio managers

What are worth conferences for credit portfolio managers? I appreciate your recommendations! PS:I am aware that this question is not the typical quant.SE question, BUT I couldn`t find reliable ...
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106 views

Pre- Versus post-2008 Crisis Rates Modeling

Modeling for interest rate derivatives (such as bermudan swaptions) is said to have undergone significant changes since the crisis. Prior to the crisis, counterparty default risk was often ignored, ...
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42 views

Want to understand the links and relationship between all the risk metrics?

For Example : if Risk weighted asset (RWA) increased or decreased this month, which other risk metrics could have influenced RWA to increase or decrease. Also in different situations like, upward ...
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Future value of the debt under Merton model

The author Malz states the future value of the firm's debt under the Merton model can be found from: $$ D_{t} = D - \max(D - A_{t} , 0) $$ (where $D$ is the par value of the debt, $A_{t}$ is the ...
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131 views

Bayesian logit model in Psychometric or Behavioural Testing for Credit Scoring in Developing Countries

A lot of parameters in one title, I know. So there's credit scoring but not using credit history. Then there's using a Bayesian logit model. Then there's doing so in a developing country such as Haiti ...
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302 views

Obtaining the default probability and recovery rate for each credit rating?

I have the following questions for obtaining the credit rating: Given that I have cumulative default probability of each credit rating from Global Corporate Average Cumulative Default Rates (1982-...
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Using Put Volatilities to Estimate Firm Leverage/Credit Risk

This paper by Hull, Nelken and White uses implied volatilities in structural credit risk models to back out a market-implied leverage ratio. CreditGrades has a similar implementation using equity ...
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41 views

Bayesian analysis in R: Probability of default, low default portfolios

I want to apply the knowledge of this paper (Bayesian estimation of probabilities of default for low default portfolios, by Dirk Tasche) in R, but I can't find the right bayesian package and functions ...
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15 views

Why use Moody's KMV EDF for one year

If I were to use Moody's KMV proprietary database with expected default frequqncies(EDF) for sectors and countries, along with aggregations for financials and non-financials, significant banks etc: ...
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23 views

Valuation Models for Bank Credit Default

What approaches exist for calculating a fair price for a credit default swap for a bank? Most of the traditional valuation models are geared towards industrial firms. Are there any theoretical ...
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47 views

How are CDS prices calculated for financial institutions?

If you need to estimate the fair price of a credit default swap on a financial institution, can it be done? Typical structural models tend to break down for the complex debt and asset characteristics ...
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92 views

Create Markets Bubble Indicator

I am trying to replicate a Bubble Indicator described here. The indicator is strictly based on calculating the regularity of price behavior to determine herding in multiple time frames. I tried the ...
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5 views

Credit Risk Modelling for Portfolio of Bonds and CDS's

I have a portfolio of bonds and CDS's. I want to compute some statistical measures (VaR, CVaR, CreditVaR) which may help access the risk of the portfolio. So far, I have used the CreditMetrics (...
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How to build a rating two-year transition matrix?

My question concerns not how to estimate a two-year transition matrix, but how to derive it from raw data. Let me explain... By means of Markov chain I can provide an estimation of a two-year ...
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18 views

Market Price of Risk in EDF Model

Consider Moody's Expected Default Frequency (EDF) model. To arrive from risk-neutral default probabilities to real-world default probabilities, we need to know ...
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31 views

Bootstrap bond-implied default probabilities in MatLab?

Has anyone used MatLab to extract default probabilities from bond/fixed income prices? MatLab has some built in functionality to do this analysis with CDS ("cdsbootstrap"), but not bonds. Certainly ...
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18 views

RWA Calculations Formulae

I am working as IT developer for one of the investment bank and I have recently joined and it is completely new domain to me. While I am still learning about this domain, what I was looking for short ...
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110 views

Altman Z-Score to Probability of default

I have computed the Altman Z Score for approximatly 2500 companies. I was wondering if mathematically I am allowed to use a logistic function ? Such as: ...
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34 views

Credit vs Non Credit OTTI

i am wondering if anyone can guide me through calculating the credit vs non credit components in OTTI. in 2 quarters..in first quarter neither asset suffers impairment..at end of second quarter, i ...
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17 views

What happens when collateral value fluctuates?

Under a Credit Support Annex, what happens when the posted collateral looses value beyond that of the haircut? e.g. I post \$62,500 in bonds in response to a \$50,000 collateral call with a 20% ...
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65 views

Number of simulations for Monte Carlo CVA

Assuming we are calculating CVA across a netting set with a Monte Carlo methodology: 1) How many future dates ("horizons") would be typical - or does that depend entirely upon the composition of the ...
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What interest rate dynamics would you suggest to simulate a single swap?

I need to calculate the Potential Future Exposure (PFE) for a single swap (not a portfolio). As far as I know, a stochastic model is needed to simulate the interest rate curves (from here). Could ...