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Questions tagged [credit-risk]

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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Survival rate for mortgage loans

I am trying to search for some papers that calculate the survival rate for mortgage loans based on a number of characteristics like loan-to-value, FICO, etc... The survival rate is essentially a ...
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1answer
72 views

Credit Risk default [on hold]

Consider a one-factor model to describe the correlation structure between two companies, ABC and XYZ. The one-factor model for them are given by ABC: x1 = 0.6F + 0.8Z1; XYZ: x2 = 0.8F + 0.6Z2, where F ...
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44 views

Duration adjusted credit spread

I am currently reading two policy papers that construct, for a fixed-income bond, a following credit spread: This one, p. 12, computes the yield to maturity minus the Overnight Index Swap (OIS) rate ...
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22 views

Dynamically calculating credit risk concentration

I have a porfolio of mortgage loans where each loan has a number of attributes attr1, attr2, .., attrN. I would like to analyze the portfolio credit risk concentration using these attributes, but ...
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44 views

Book on credit risk modelling and R programming

I am looking for a book which explains credit risk modelling and ideally uses R. Python would be okay as well. It should cover topics such as Scorecard development ROC Curves PD, LGD, EAD estimation
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16 views

Collateralized Bond Obligations History

Collateralized Bond Obligations (CBOs) were a form of CDOs that were more popular in the early 2000s. I am looking for: Historical loss rates on their tranches (if available) Whether historically any ...
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52 views

Pricing default risk in cryptos

I'm looking to figure out how to price "insurance" against a counter-party defaulting in an OTC cryptocurrency transaction. I think the first measure would be to calculate VaR? I'm planning on ...
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1answer
66 views

Credit Spreads and Relative Value : floating vs fixed bond

I would like to study if, in these weeks during the italian credit crisis, floating govy bonds were more resilient than fixed govy bonds. For each floating issue (CCTS) I chose the fixed issue with ...
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25 views

Any Suggestion for Credit Risk Measure for Banking Industry in Turkey?

I need a measure that will proxy for overall credit risk in the banking industry of Turkey. The literature offers LIBOR-OIS spread and Moody's Baa-Aaa spread as strong candidates. However, these ...
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1answer
64 views

Calculating the long run average default rate when the portfolio changes during the year

The Basel rules prescribe to calculate a long run average default rate (LADR). It is stated that his rate should be calculated as the average of yearly default rates. A first idea what be: look at ...
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108 views

How Machine Learning model addresses adverse action concerns -credit scorcard?

How to find the variables involved in the decision to report adverse action when the origination scorecard is developed using Machine Learning - XGBOOST with monotonic constraints (80 variables) ...
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1answer
45 views

Implied credit spread convertible bonds with negative yield

I’m trying to understand what happens to the credit spread of a convertible bond when yields of the convertible are negative. I’ve heard there is an implied credit spread as spreads can’t really be ...
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51 views

Should risky gov't bonds be treated differently from riskless ones when it comes to risk computation?

If I were computing: YTM, DV01, OAS, Spread Duration for risk-free gov't bonds (eg, US Treasuries, German Gov't Bonds), and suddenly I'm adding risky gov't bonds to my portfolio, should the ...
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46 views

CreditGrades model calibration and initial values

Currently doing a project on structural models, and I want to apply the CreditGrades model. My question is what values are the parameters going to take, in order to update the implied probability of ...
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41 views

Debt per share in CreditGrades model

In order to specify the debt per share in the CreditGrades model one has to specify the liabilities to be included from the firm's balance sheet. I do not have access to the technical document ...
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0answers
22 views

Altman Z-Scoring and unknown variables [closed]

Assume we have the known Altman Z-Scoring model $Z= 0.012X_1 + 0.014X_2 + 0.033X_3 + 0.006X_4 + 0.999X_5$ But the variables $X_i ,i=1,2,3,4,5$ are unknown. Is it statistically correct to make an ...
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34 views

How are Risk indices linked to Physical Trading returns?

Ref to my previous question here: Physical trading spot transaction analysis-Quantified I have been able to narrow down my aim to defining a physical trading strategy P&L. My question is, how ...
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1answer
201 views

credit risk - marginal default probability

I have been working on an assignment trying to calculate marginal/conditional probability of default. Using a logistic regression framework, I was able to compute the 12-month unconditional PD for ...
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0answers
43 views

How can I find what Loss Given Default to use

I want to come up with the appropriate loss given default for a commodity derivative in my CVA calculation. would anyone know where I can find this information?
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63 views

Implementing Pykthin Multi-factor adjustment

I've made a mistake in the implementation of Pykthin Multi-factor adjustment which I'm fairly certain comes from me not understanding the model completely. The model was developed to drastically ...
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1answer
288 views

Mark to Market of a CDS Contract and Risky Annuities

From JP Morgan's Trading Credit Curves 1 and we have that: The MTM of a CDS contract is (for a sell of protection) therefore: $$\text{MTM} = (S_{\text{Initial}}-S_{\text{Current}}).\text{...
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1answer
38 views

Heuristic (or algorithm) for calculating a risk premium, given a probability of default and a “minimum” profit margin (expressed as a yield)

Assuming that I have means of determining and calculating the following metrics: Risk (i.e. probability*) of a default to a particular borrower as P Profit margin of X% The profit margin is taken to ...
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48 views

Quantitative and regulatory aspects of portfolio integration in IRB credit portfolios

Say bank A buys a credit portfolio "B" (e.g. corporate loans or retail mortgage, ...) from bank B. Bank A fulfills the the requirements of CRR (capital requirement regulation) for its existing ...
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2answers
218 views

Merton model for Probability of Default - What liabilities?

In Merton structural model for credit risk (74), the company's Assets and Liabilities are used to imply the default probability of the firm. At the end, we don't need to know the assets value, and ...
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0answers
26 views

Why do supervisors deem qualified revolving retail less risky than other retail exposure

I would like to gain more understanding of the economic background of some Basel formulas. In the Basel guidelines in retail credit risk we have a risk weight function that depends on the correlation ...
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0answers
22 views

Modelling Specialised Lending deals

This question by itself is less a quant question but it has impact on the quantitative model to use. In 2006 CEBS gudilines we find a definition similar to this: Specialised Lending (SP) is a sub-...
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0answers
299 views

What is credit risk in a private equity portfolio?

If I am a private equity fund manager (e.g I have a portfolio consisting of direct private equity investments), what does credit risk mean in a practical sense for me? The usual issuer credit risk ...
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1answer
88 views

Simplifying an expectation function of default time and rates

I have the following expectation to calculate : $$ \mathbf{E}\left[ e^{\int_{t_0}^{\tau} r_s ds} \mathbf{1}_{\{\tau < T\}}\right] $$ More precisely, I want to show that : $$ \mathbf{E}\left[ e^{\...
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2answers
108 views

Choosing a proxy for asset credit event correlations

I'm interested in modeling the joint likelihood for rating changes and default events across a portfolio of bonds. To estimate the correlation between these assets, I can use a third-party factor ...
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1answer
3k views

Discount Curve Vs Forward Curve

This could be a trivial question, but would I like to clear the concepts. Our firm started sourcing the Murex Trades which has all the variety of Derivative products. I noticed that the Curve ...
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1answer
137 views

Asset Swap Spreads

This is John Hull's book Options, Futures and Other Derivatives 9th Page 549 The process of calculating the ...
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1answer
1k views

How to calculate credit spread from rating

I've been trying to calculate the credit spread of a financial institution with a Fitch rate of A. By using the transition matrix (https://www.fitchratings.com/web_content/nrsro/nav/NRSRO_Exhibit-1....
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1answer
170 views

CDS Vs Credit Risk premium over risk free

Credit default swap is the premium you pay to protect against a credit default from your borrower. Would it be equal to the credit premium over risk free i.e. bond yield - risk free of comparable ...
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2answers
53 views

Problem of PD estimation [closed]

Why is small number of defaults is a problem in case of PD estimation? What are the consequences? Can you recommend notes, books, etc about the topic?
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55 views

CDS systemic and idiosyncratic risks

It is well known that generally CDS spreads increase as credit-worthiness of a firm declines. Is it possible to separate the systemic/market risk from the idiosyncratic/specific firm's risk in a CDS ...
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2answers
227 views

What Is the correct discounting, risky or riskless?

Suppose I can sell a European put in two ways: 1) in a mark to market collateralized market with collateral rate equal to the riskless rate $r$; 2) in a noncollaterized market where I get the payment ...
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1answer
362 views

How to compute the CVA on a swap with SPV?

If we have a swap with a bank and Special Purpose Vehicle (SPV), and the swap is un-collateralized , how do we estimate Credit Value Adjustment on the swap? I will be able to get the Expected ...
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1answer
85 views

Integrating Credit and Market VaR

For a portfolio of fixed income, is there a framework or model for providing a VaR-type estimate that takes into account not only market risk factors, but also the loss associated with the probability ...
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31 views

Possible problems in Credit Netting

What are some possible problems that can arise from having netting agreements ? is it around the weak modelling of some payoffs that can result in bad algebraic summation ie adding the +ves and -ves?
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1answer
104 views

What are the quantitative approaches to quantify credit risk for Private Equity and Real Estate?

What are some quantitative approaches to estimating credit risk for investments that aren't publicly traded, such as private equity and direct real estate? I'm particularly interested in estimating ...
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1answer
397 views

Interest Rate Swap Pre-Settlement Risk

I am kind of confused about how to approach the following question. Suppose I enter into a interest rate swap (IRS) with counter party C. Details are : Fixed rate rate receiver, floating rate payer :...
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142 views

CDO Implied correlation: what for?

Reading about CDOs and calibration to find the implied correlation, I came up with the following question. Suppose we are pricing a CDO over a pool of $N=125$ names, using the usual Gaussian copula ...
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0answers
111 views

Derivative and Credit Risk Modelling

I am looking at acquiring a system to help with multi-instrument modelling. Across the spectrum Equity/FI/Swap/Repo/CDS/FxSwap/Forward/Future/etc for vanilla and more complex derivatives. The modeling ...
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85 views

How cyclical should a rating system be and why?

I am reading about different approaches for building a rating system and came across the terms Through-the-Cycle (TTC) and Point-in-Time (PIT). They are both extreme cases of whether a rating system ...
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6answers
9k views

What's the difference between credit risk and counterparty credit risk?

As the title reads, what is the difference between credit risk and counterparty credit risk? What are the key differences?
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1answer
249 views

Is exposure at default the same thing as the limit amount on a loan?

In Credit Risk terminology, is the Exposure at Default(EAD) the same thing as the total Credit LIMIT amount on the Loan? Because if Bank gives a loan with a limit of 10,000$ and the borrower has a ...
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1answer
1k views

Why is the overnight index swaps considered risk-free?

What I have understood is that the overnight index swap is bootstrapped to discount rates/zero rates that in their turn are considered risk free. The reason being, that the reference rate of such swap ...
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1answer
417 views

For IFRS9, losses should be discounted with the EIR, why is that sensible?

Within the IFRS9 framework it is stated that one needs to determine the expected losses and discount these with the effective interest rate (EIR), i.e. the contractual rate at initiation. However, I ...
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178 views

Monte Carlo simulation implementation

This question relates to credit portfolio analysis. I was asked by my teacher the following question : Why would a bank use MC simulation in the implementation of the covariance model (a bottom-up ...
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1answer
11k views

How do I use machine learning to build a credit scoring model? [closed]

There are currently a lot of ways for credit scoring. The most popular one is the FICO score, and its variants. For my masters thesis, I would like to work on making my own credit scoring system using ...