# Tag Info

## Hot answers tagged credit-risk

### How do I use machine learning to build a credit scoring model?

One excellent resource is to try Kaggle and to examine some of the competitions, some of which are specifically on the application of machine learning to credit scoring. https://www.kaggle.com/c/...
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### What's the difference between credit risk and counterparty credit risk?

Both 'credit risk' and 'counterparty credit risk' refer to the same type of risk, i.e. the risk that the opposite side of a contract will not honor its obligations to repay. But 'credit risk' will be ...
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### Why do we need to split market and default information into 2 separate filtrations?

I think you are absolutely correct if the hazard rate is deterministic, although I think you are forgetting a discounting factor in your example. But sometimes the hazard rate cannot be assumed to be ...
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### Why investment grade floor is set at Baa3/BBB-?

The differences in credit risk between Moody's Baa2 versus Baa3 versus Ba1 versus Ba2 are all comparable. People would pay much less attention to agency ratings had the regulators not forced them to. ...
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### Investment Grade Bond vs Junk Bond, whose duration is larger?

There are different measures and interpretations of duration. One, as has been pointed out already, has a formula weighting coupons and final contractual cashflow. Other definitions of duration take a ...
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### Default Probability Implied in Bond Prices?

Assume : $R$ a recovery rate, a continuous payment a flat intensity $\lambda$ i.e $$\mathbb{P}(\tau>t)=e^{-\lambda t}$$ a flat discount rate $r$ With bonds prices Assuming JPM bond pays a coupon ...
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### Does bond market trading price has recovery assumption in mind?

The price of a defaultable bond is driven by 3 things: the observable interest rates the probability of default the price of the bond after a default (or, equivalently, the loss given default) The ...
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### EAD = Drawn amount + Undrawn amount * CCF?

Your equation is right. There are 2 ways to write EAD: EAD = Drawn + a x Undrawn; or EAD = a x Limit. In both equations, a is called CCF but it is derived/estimated differently depending on which ...
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### Estimation of Default Probability using Merton's model

As you see in the third equation on that Mathworks page, the Merton model postulates that the value of equity equals the value on a residual claim on a company's assets after the creditor has been ...
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### Why do bank stock returns increase from increased credit risk?

Your “Credit Risk” variable sounds like it should be more accurately described as “Credit Spread”, which proxies the risk of loans. As credit spreads increase, the risk of the loans a finance company’...

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

1 ) Spread is for fwd only 4 ) Discounting is SOFR in any case (if using dual curve). See here for some details. That said, FF OIS still exists, but even this curve is discounted by SOFR and applies &...
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### seek clarification about PFE

Potential future exposure (PFE) is a concept in credit analysis, that is we are investigating the risk that a counterparty will not be able to pay us in the future. In a typical derivative deal ...
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### Why investment grade floor is set at Baa3/BBB-?

Yeah, default rate jumps considerably. For example in following, mid value of default rate jumps from 1% to 7.5 % : "COMMISSION IMPLEMENTING REGULATION (EU) 2016/1799 of 7 October 2016 laying ...
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### Where to find historical data on corporate credit ratings

I found this link with a lot of parsed data http://ratingshistory.info/
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### What's the difference between credit risk and counterparty credit risk?

There is no significant difference between the two. Both can be considered a financial risk, although credit risk appear to have a slightly broader view. You might also hear the term default risk used....
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### How to calculate the CVA of a forward contract?

Actually the problem is that the probability of default the second year is conditioned by the default the first year. So you have to multiply 4%*101.21*99%, because 1% of the times it has already ...
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### Default Probability Implied in Bond Prices?

One more thing that must be considered is the expected recovery rate. A model that ignores this rate is not tied to the real world. To estimate the probability of default, you would need to find the ...
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### Calibration Merton Jump-Diffusion

Hi am having to write as an 'answer' as am new to forum. We used stochastic intensity models on desk from a while back. Generally Black-Karasinski to avoid negative hazard rates (and for useful ...
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### What's the difference between credit risk and counterparty credit risk?

I think the accepted answer gives the right insight, but I would like to add a further consideration: the difference between credit and counterparty risk is related to the main risk you are seeking ...
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### What's the difference between credit risk and counterparty credit risk?

This is my take on the matter: ** Credit risk ** - this can be defined as the risks of default on financial obligations from the extension of credit directly to a counterparty or indirectly ...
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### How to compute the CVA on a swap with SPV?

The assets of the SPV constitute a single corporate loan. Therefore the probability of default and LGD of the bond can be estimated from the CDS market for that corporate. Now the SPV defaults if ...
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