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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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125 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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384 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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7k views

How to calculate Credit VaR?

(source John Hull, Options Futures and Other Derivatives 8th edition) I can't follow why Hull calculates Credit VaR in the following manner. I thought CVaR was Unexpected Loss$_{confidence}$ - ...
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1answer
387 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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1answer
30 views

A quick and dirty loss distribution and Credit VaR

I need to create a loss distribution for a credit portfolio as the first steps to estimate the portfolio Credit VaR. I have historical monthly account snapshots (payment history) of all accounts ...
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1answer
5k 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
249 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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49 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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8k 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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36 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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0answers
139 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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0answers
29 views

Connections between logistic regression, information value and Kullback-Leibler

I am new to credit risk modeling, my background is in mathematics and physics, so I am looking to justify some commonly used techniques from first principles. Suppose that we are interested in ...
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0answers
151 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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54 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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0answers
31 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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0answers
195 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
135 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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0answers
284 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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0answers
70 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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73 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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69 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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0answers
99 views

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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0answers
163 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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410 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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Extracting Risk Neutral Default Probabilities using Option Adjusted Bond Prices

I am currently in a project trying to quantify default risk premia for US Corporate Bonds. The data I have consists of bond prices, and other information (i.e. YTM, OAS, Effective Duration, Maturity ...
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26 views

Exposure at Default (EAD) models with and without the Credit Conversion Factor (CCF)

Exposure at Default (EAD) models with and without the Credit Conversion Factor (CCF). What are the pros and the cons of each, and which one should use a small commercial bank?
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Need to solve the stochastic differential equation of Vasicek Model

How to solve the stochastic differential equation of the Vasicek model for the analysis of credit risk? I search in the article "The Distribution of loan portfolio value" (Vasicek) but he doesn't ...
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34 views

Gaussian copula: contract price

The hazard rates for A and B are 1% and 2% respectively. A contract pays you $1 if A defaults earlier than B. What is the correlation that minimizes the price of the contract? I have not studied the ...
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72 views

Spread Duration weighted OAS vs. Mkt Cap Weighted?

I am curious what the differences might be in rolling up OAS spreads across a portfolio by duration weighting vs. mkt cap weighting. @Alex yes I meant S.D. weighted not Duration weighted
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33 views

How to measure effectiveness of CDS hedging

In a fixed income emerging markets portfolio investing in Sovereign and Corporates, CDS on governement bonds are used for hedging credit risk. To be clear CDS are used to hedge both the exposure of ...
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0answers
38 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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0answers
51 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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0answers
81 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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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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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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402 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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217 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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0answers
47 views

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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52 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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122 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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24 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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203 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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72 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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43 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 ...