# 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.

138 questions
Filter by
Sorted by
Tagged with
890 views

### How to compute the volatility for the Merton's Model for Private firm?

After one day of research i did not figured how to compute the input volatility for PRIVATE COMPANY in order to calculate the PD. My goal is to compute the PD of each of my company in my portfolio, ...
9k 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 ...
8k 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$_{confidence}$ - ...
99 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 ...
1k views

### How are netting sets determined for CVA calculation?

In his book, Gregory describes a netting set as a set of trades that can be legally netted together in the event of a default Obviously, the netting agreements (as per ISDA master agreement) ...
5k views

### How do right-to-break clauses affect CVA calculations

Does the presence of a optional/mandatory right-to-break clause affect CVA calculations, and if so, how? Given two (otherwise identical) 10y swaps with the same counterparty, one of which has a right ...
110 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 ...
165 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 ...
603 views

### Extracting Default probability from a single CDS

I have to find the CDS's default probability using the simplest Poisson Process (intensity constant). I'm wondering how to get this estimate if I have only a CDS with maturity 5years. If I had ...
37 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 couldnt find reliable ...
688 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?...
508 views

### References for PD / LGD estimates of low-default portfolios

Any recommendations or reading sources for estimating individual PDs and LGDs for a set of low-default assets (souvereigns, investment grade corporates)? Since observing no defaults at all, regular ...
1k views

### Book recommendation for credit risk management for banking

What is a good beginner book on the topic of Credit Risk management for banking? I am a credit risk systems developer and most of my knowledge is in IT systems and programs that support the credit ...
132 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 ...
135 views

### What are good online resources for credit portfolio managers?

I am aware that this question is not the typical quant.SE question, BUT I couldnt find any site/forum/wiki, where credit portfolio managers hang out to share their experience and their methods. ...
692 views

### What are the different Credit Portfolio Management models and what are their advantages?

CreditMetrics, RiskMetrics(Algorithims), etc. are all different risk methodologies used by many banks. However, what are their advantages/disadvantages? I would appreciate your replies!
2k views

### Actually benefiting from logistic regression to estimate probability of default

Does anyone know any events where using logistic regression to estimate probability of default has led to a bank, financial institution, government or anything really to benefit in practice? I see a ...
4k views

### What is Margin of Conservatism

In modelling loss given default,(LGD), we often encounter the term Margin of Conservatism. What is it in layman's terms? I am not able to find a wikipedia page on this.
922 views

### Term structure of default probabilities without market data

With the forthcoming new regulations, IFRS9, financial institutions will be required to model life time expected credit losses. Consequently, it is necessary to model the term structure of default ...
1k views

### Hedging bond with CDS of different maturity

Say I buy a 10-year bond with a notional of 100k. To hedge my credit risk entirely I could buy a 10-year CDS, also on a notional of 100k. Now, if there are only 5-year CDS trading and no 10-year CDS, ...
196 views

### What are the canonical references on wholesale credit risk management?

I am trying to read up on "Wholesale credit risk ", but I can't find any useful references. Why is the emphasis on wholesale?
256 views

### CVA/CDVA - Worsened Credit Quality implies profit?

In the book Counterparty Credit Risk, Collateral and Funding by Brigo et al I found the following: credit quality of investor WORSENS $\Rightarrow$ books POSITIVE MARK TO MKT credit quality of ...
4k views

### Cost of Carry Bear Flattener

I was reading a report last week that “the carry on a 2s5s gilt curve flattener is negative to the tune of 10bp over 6 months” and I realised I have little understanding of this concept and how ...
167 views

### CDS - Accumulated Default Risk?

Say I issue insurance contracts covering fire damage in personal households. Fires occur with a probability of $x$% in a household (and they obviously occur independently from one another). If the ...
481 views

### Counterparty risk tutorials

I want to learn about the latest methods used to measure credit risk, which I believe is same as counterparty risk. Can you please direct me some links for this. I have come across a few of them but ...
753 views

### For Probability of Default in retail credit what is more popular logistic regression or GLM with Poisson distribution and why?

Trying to understand which regression model is more popular in retail credit card industry Logistic regression or GLM with Poisson distribution and why?
4k views

### Documentation of the ISDA CDS standard model

I have to validate the use of the ISDA CDS standard model. Don't understand me wrong - I am sure that the ISDA model is "good" I just need to know what it is in detail. I can download an Excel-...
74 views

### The role of micro credit in finance

The concept of micro credit has been around for a while. Recall that Muhammad Yunus together with Grameen Bank were awarded the Nobel price in this context. I don't have references at hand but I ...
145 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, ...
5k views

### Difference between VaR and credit VaR?

Quick question: is there a difference between credit VaR and VaR or are they the same thing?
338 views

### what is General IB2 Restriction in Basel II credit risk model

I was reading Basel II wiki page, it says: The first pillar The first pillar deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: ...
419 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-...
456 views

### What structural model does Reuters use for default probability?

When using Reuters, for each listed company there is credit tab that shows relevant information in terms of credit default. There is also rating class as well as one year default probability. It is ...
113 views

### Creditworthiness indicator for copula one-factor model

In this paper in equation 15 on page 261 dealing with one factor copula model, one is using creditworthiness indicator as one of a variables. It is defined as Y_c = \sqrt{\rho_c} Z +...
4k views

### Is Unexpected Loss ever used in Basel II?

In Basel II, EL is useful. It's calculated as $$EL = PD \cdot EAD \cdot LGD$$ in advance IRB (internal rate-based approach), Correlation R = 0.12 \frac{1 – e^{-50 \cdot PD}}{1 – e^{-50}} + 0.24 ...
999 views

### Hedging credit risk using Put equity options

I am looking for some paper or similar which deal with this topic: hedging bankruptcy on firm's debt using Put options written on that firm's equity price. This should be based on the assumption that ...
458 views

### Credit risk data

I am trying to get historical data for credit risk and do some analysis on it as a school project. I thought CDX index might be a good proxy for typical credit risk data, but I am not sure. Typically ...
4k views

### 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 ...