Skip to main content

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.

Filter by
Sorted by
Tagged with
1 vote
0 answers
58 views

Corporate Credit Risk Modeling Books

Can anybody refer me to a good corporate credit risk modeling book? I'm looking for something more advanced than what's in Hull's very good risk management book. There seems to be many excellent ...
Charles0349's user avatar
0 votes
0 answers
43 views

JP Morgan CreditMetrics

I am trying to apply CreditMetrics on a 2 bond portfolio. As far as I know, this model returns the expected recovery rate and the volatility between those 2 bonds, so my question is how I calculate ...
polo_ hdz's user avatar
0 votes
1 answer
50 views

Question about (lLack of) Risk Neutral Bond Pricing in Duffie & Lando (2001)

I have been reading this famous paper of Duffie & Lando (2001) and I have a question regarding how they calculate the price of a bond (the reader of this post will not have to dive deep into the ...
qp212223's user avatar
  • 170
1 vote
0 answers
60 views

Margin period of risk and scaling (MPoR)

I'm analyzing the formula to approximate the Margin Period of Risk (MPoR) for linearly linearly decreasing to zero exposure. Given the MPoR at $\tau$ one can evaluate the continious total exposure at $...
bag_dush's user avatar
1 vote
1 answer
214 views

Zero-recovery swap / extinguisher swap

Trying to understand the idea of a zero-recovery swap, for example, a xccy swap with a default clause that allows you to walk away without any future payment from either side if the counterparty ...
eMe's user avatar
  • 43
0 votes
1 answer
62 views

How should I create a Risk measurement Variable?

I have clients who take loans (Advances) weekly. The way that they repay the advance is after 3 weeks when their goods are sold, using the sales proceeds of the goods. But if the goods don't sell for ...
user70803's user avatar
1 vote
1 answer
37 views

What is the meaning of Leverage ratio consuming business

Leverage ratio (LR) is defined by the ratio between Tier-1 capital and total exposure (off and on balance-sheet exposure), which does not consider credit-worthiness. It is said that: [loans to] ...
Brian Smith's user avatar
0 votes
0 answers
87 views

Through-the-cycle rating transition matrix

Suppose we know the observed transition matrix for annual migrations between credit ratings, $T_{ij,t}$, for $N$ years. How is the through-the-cycle (TTC) transition matrix defined? Sometimes the ...
TheTwistedSector's user avatar
0 votes
0 answers
47 views

Understanding the application of Asset-Correlation to credit risk models

Suppose we have a portfolio of $n$ credits. In order the estimate the Portfolio Value at Risk (99,9) we use a standard vasicek model with the Ability to pay variable $A_i=\sqrt{\rho}x+\sqrt{1-\rho}z_i$...
Alex's user avatar
  • 1
0 votes
0 answers
63 views

How to construct the probability of default (PD) with not much historical data (<1 year)?

If a financing company has a new funding program, is there a statistical method that can be used to construct a probability of default (PD) for IFRS 9 ECL calculation purposes? Considering that ...
Daniel Dayan's user avatar
4 votes
0 answers
213 views

Long term average of transition matrix

Some companies publish historic yearly/quarterly transition metrics for credit rating transitions such as the "Credit Rating Transition and Default Study 2021" by Kula and Bourin from Scope ...
Bogaso's user avatar
  • 802
1 vote
1 answer
96 views

Multiple credit risk mitigation (CRM) treatment in RWA calculation in F-IRB approach Basel II

I have a confusion about how to calculate RWA for a exposure with many types of CRM (says, collaterals and guarantee) in IRB approach. In BCBS128, point 206, "In the case where a bank has ...
Quý Nguyễn's user avatar
0 votes
1 answer
139 views

Where to find historical data on corporate credit ratings

I am looking for a parsed dataset with historical data for company credit ratings. I know NRSROs need to make their historical data public. I found Moody's (https://ratings.moodys.com/sec-17g-7b), S&...
Niki Karaolis's user avatar
1 vote
1 answer
65 views

Segregated margin call question

What means segregated margin call and non-segregated margin call in the example. Why it is calculated that way? Thank you. https://www.google.com/url?sa=t&source=web&rct=j&url=https://www....
Tom Ho's user avatar
  • 51
0 votes
1 answer
91 views

How the margining system worked in this situation?

In Section 2.5 of Options, Futures, and Other Derivatives (8th edition), there is a paragraph discussing the credit risk associated with the operation of margins: The whole purpose of the margining ...
Zhanxiong's user avatar
  • 125
2 votes
1 answer
2k views

the difference between CS01 and RS 1%

Please tell me the difference between CS01 and RST 1% (Relative spreads tightening by 1%) and how these two are used to monitor the credit flow traded product's exposures. Why would you use the spread ...
risknewbie's user avatar
0 votes
2 answers
512 views

The difference between Credit Curve and CDS Curve

What's the difference between the credit curve and the CDS curve? Can I read the CDS curve from the Bloomberg terminal? for both single name and index? Also, can someone please explain the difference ...
risknewbie's user avatar
1 vote
1 answer
155 views

Does Gordy Formula measure default risk & downgrade risk?

The Gordy Formula used for measuring Credit Risk as proposed in Basel Rules is based on the asymptotic single risk factor model. It is derived from a Merton Model. The Merton Model only knows to stati,...
PalimPalim's user avatar
3 votes
0 answers
160 views

How to create/define concentration risk limits for credit portfolios

How do you create/define concentration risk limits for credit portfolios? I've seen a lot of recommendation for HHI for example, but how do I define what is high or low concentration? The idea of the ...
IdlerGhost's user avatar
3 votes
1 answer
86 views

Strange calculation for Credit risk [closed]

One of the measures to quantify credit risk is to calculate the Expected loss, which is typically quantifies as $EL = EAD \times PD \times LGD$ However, I have come across a somewhat strange ...
augustine's user avatar
1 vote
1 answer
69 views

Estimating credit transition probabilities from additional information

Let say $P_{i,j}, j = 1,2,3, DEF$ are the probabilities of transitions from an initial rating $i$ to rating $j$, where $P_{i, DEF}$ represents the default probability from that initial rating. Now let ...
Bogaso's user avatar
  • 802
2 votes
1 answer
66 views

Efficient encoding technique for credit ratings

Is there any categorical encoding technique for credit ratings that take into account the kind of non linear nature of the notches of the credit ratings? The literature standard is the ordinal one ...
wanna_be_quant's user avatar
1 vote
0 answers
33 views

Why do some TIPS bonds have credit spread < 0 [duplicate]

If we look at the yield spreads on Bloomberg of some TIPS bonds, we see they have credit spread < 0 (i.e. their yield is even lower than their benchmark treasury bonds) Why is that the case. ...
Matt Frank's user avatar
1 vote
3 answers
208 views

Why investment grade floor is set at Baa3/BBB-?

I have studied methodologies for Moody's and S&P ratings but haven't seen any instance where the respective agencies have mentioned the reason choosing Baa3/BBB- as the dividing line between ...
Harsh Sharma's user avatar
0 votes
1 answer
84 views

Credit rating of an Issuer

When analysing historical movements of credit rating, sometime credit rating is put as Non-rated or NR. Is there any industry ...
Brian Smith's user avatar
0 votes
1 answer
227 views

Bond value as a function of spread change and duration/maturity

I am trying to calculate the change of value in a universe of bonds given a series of shocks to the credit spread of each bond. As a constraint, the initial dataset only contains the spread change for ...
sets's user avatar
  • 1,471
1 vote
1 answer
153 views

Help with simple derivation of probability of credit default

I'm going over a chapter in Hull's Options, Futures, and Other Derivatives and am stuck on how the probability of default is derived. Here's the image of the derivation. I can follow all of it except ...
Cuber's user avatar
  • 113
1 vote
1 answer
782 views

Relationship between risk free rate and credit spread in the Merton model

Based on Merton model of credit risk, I understand that investing in a risky debt is the same as buying a treasury bond and writing a put option on the firm's assets with a strike price equal to the ...
Teemo's user avatar
  • 11
1 vote
2 answers
118 views

Credit loss data (discounted)

I am looking into a data provider which provide the credit loss data from different banks - https://globalcreditdata.org/interactive-dashboard/ They also provide ...
Brian Smith's user avatar
1 vote
3 answers
248 views

How does the bank uses the provisioning amount and RWA based capital adequacy

As I am new to the banking risk management, I need some clarity on the concept of provisioning and capital adequacy with respect to banking industry. As the banks make loans and some of these loans ...
user51988's user avatar
0 votes
0 answers
440 views

Time series data for probability of default (or credit ratings)

I'm currently investigating potential correlations among ESG ratings and credit ratings; more in particular, i'm trying to understand whether such correlation evolved during the last 20 (?) years, and ...
Matteo Menziani's user avatar
0 votes
2 answers
151 views

seek clarification about PFE

I'm a software developer want to know a little about quant basics. My undserstanding of PFE is that a PFE of a trade at a future time point is commonly defined by taking the average of the highest (or ...
techie11's user avatar
  • 213
1 vote
1 answer
128 views

Calculation of Total Credit Risk Capital % but seeing lower capital percentage for higher risk band. Is there any correction required?

I am trying to calculate the Total Credit Risk capital % for my learning purpose as given below. Assuming adding 1 single loan with different pds. i have noticed one point in the table and have two ...
user3762120's user avatar
0 votes
1 answer
63 views

pooling equilibrium

I was hoping for some help on how to answer a question about pooling equilibrium. Suppose a bank wants to give loans of 1 million dollars to people, but it cannot differentiate between high risk ...
Alex G's user avatar
  • 1
1 vote
1 answer
260 views

How do I estimate the factor sensitivity in a Vasicek Single Factor Model?

I understand the formula of an asset return for an obligor i is given by the following: $$A_i = \sqrt{w_i}*Z + \sqrt{1-w_i}*\epsilon_i $$ My question is - How do I calculate $w_i$? I have the PD, LGD ...
user avatar
2 votes
2 answers
475 views

How to account for the credit spread ( e.g. LIBOR + 2%) when using the Multicurve Methodology in valuing a Swap

When valuing an Interest rate swap, counterparties will typically issue the contract at a Libor + credit premium, e.g. Libor +2%. When valuing a swap, we require a LIBOR forward curve and Discounting ...
Student's user avatar
  • 39
0 votes
0 answers
3k views

Risky PV01 Vs CS01 for Credit Derivatives

Can someone please tell if there is a difference between CS01 and Risky PV01 of CDX or CDX Index Options ? Someone told me that they are technically equal only when Par Spread is equal to Standard ...
Peter's user avatar
  • 1
0 votes
1 answer
1k views

Does credit default swaps have interest rate duration and credit duration?

Will a CDS have interest rate duration and credit duration? It does seem likely that the value of the CDS would depend on the underlying interest rate, or the spread. But when I try to Google this I ...
user394334's user avatar
0 votes
0 answers
33 views

Default rate short majurity

What is the best way of measuring default rates for a portfolio which contains mostly loans which are either 30, 60 or 90 days term? Normally I use the following methodology Look at all loans which ...
PalimPalim's user avatar
0 votes
0 answers
440 views

A list of the 01's in the corporate bonds

I have frequently heard terms like DV01, CV01, PV01. Where can I get a list of these glossaries to study? I am not looking for a detailed explanation, just really a list.. Once I have the list, I can ...
CuriousMind's user avatar
0 votes
1 answer
83 views

Liquid products/indexes to hedge/price a corporate bonds portfolio

Generally, for a corporate bonds portfolio, what are the common risk factors that's hedge-able through some liquid products? I know we can hedge the rate-risk through treasuries. We have some ETFs for ...
CuriousMind's user avatar
1 vote
1 answer
2k views

CDS spread changes with its recovery rate

Not sure if my question makes any sense because I'm pretty new to the credit market. Suppose I have a 5Y CDS spread which is quoted as 100 bps with 40% recovery rate. So, if I want to estimate another ...
Pandaaaaaaa's user avatar
2 votes
2 answers
446 views

Dependence between Credit Default Risk and Credit Spread Risk

I am trying to understand the difference and similarities between Credit Spread Risk and Credit Default Risk. Here is brief (and not all too precise) definition. Credit Spread Risk: Losses due to ...
Cettt's user avatar
  • 1,456
0 votes
1 answer
471 views

Why the increase of presumed recovery rate will increase the implied default probability?

From Hull's paper, the implied default probability (lambda) = credit spread/(1-recovery rate). Therefore, we can infer that, as the recovery rate goes up, the lambda will also go up. Why is that? I ...
haozheng li's user avatar
13 votes
2 answers
347 views

Why do we need to split market and default information into 2 separate filtrations?

The reduced-form approach to modelling derivatives with credit risk normally assumes the existence of two filtrations: A market filtration $(\mathscr{F}_t)_{t\geq0}$ carrying market and economic ...
Daneel Olivaw's user avatar
0 votes
1 answer
77 views

Variables for retail lending of bank

Typically to estimate the credit-worthiness of customers in retain bank lending, banks generally consider many demographic and socio-economic variables most importantly - Age, number of dependents, ...
Brian Smith's user avatar
0 votes
1 answer
90 views

Why do bank stock returns increase from increased credit risk?

As part of my bachelor's thesis, I am running the following regression on daily bank excess returns: (r-rf)=Beta * Market excess return + Beta * Level(5Y)+ Beta * Credit Risk + error Level(5Y) is the ...
user62491's user avatar
0 votes
1 answer
226 views

Regression analysis in finance - book recommendation

Hey I am looking for a good book about regression analysis in finance (e.g. credit risk). Could you recommend something? It would be great if this book will be connected with some programmic language ...
Johhn White's user avatar
0 votes
1 answer
157 views

Generalized Linear Mixed Model (GLMM) for the probability of default of corporates

I work in the financial industry and we want to implement an internal rating model for our clients (think corporates large or mid , banks etc. some listed on an exchange some others not). We want to ...
Stelios Kounis's user avatar
1 vote
1 answer
224 views

Observed rating migration matrix to derive the generator matrix

I am doing some reading on the derivation of credit rating migration/transition matrices and probability of default term structures. I understand that a homogeneous Markov chain can be either discrete-...
koteletje's user avatar
  • 145

1
2 3 4 5