Correlations And Business Cycles Of Credit Risk
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Correlations And Business Cycles Of Credit Risk
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Author : Daniel Roesch
language : en
Publisher:
Release Date : 2013
Correlations And Business Cycles Of Credit Risk written by Daniel Roesch and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
A major topic in empirical finance is correlation of default risk. Correlations are the main drivers for credit risk on a portfolio basis and for banks' capital requirements under the New Basel Accord. However, empirical evidence on the magnitude of correlations is rather scarce, mainly due to data limitations. Using a large database of bankruptcies in Germany we estimate correlations using a simple version of the Basel II factor model. Then we extend the model to an approach with observable risk factors and suggest that this model with default probabilities depending on the state of the economy may be more adequate. Empirical evidence on proxies for the credit cycles is presented for German industry sectors. We find that much of the co-movements can be explained by our variables. Finally, we discuss some implications for forecasts of distributions of potential future defaults of a bank's Portfolio.
Correlations And Business Cycles Of Credit Risk
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Author : Daniel Rösch
language : en
Publisher:
Release Date : 2003
Correlations And Business Cycles Of Credit Risk written by Daniel Rösch and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with categories.
Correlation In Credit Risk
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Author : Xiaoling Pu
language : en
Publisher:
Release Date : 2010
Correlation In Credit Risk written by Xiaoling Pu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
Correlation Between Intensity And Recovery In Credit Risk Models
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Author : Raquel M. Gaspar
language : en
Publisher:
Release Date : 2009
Correlation Between Intensity And Recovery In Credit Risk Models written by Raquel M. Gaspar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
There has been increasing support in the empirical literature that both the probability of default (PD) and the loss given default (LGD) are correlated and driven by macroeconomic variables. Paradoxically, there has been very little effort from the theoretical literature to develop credit risk models that would include this possibility.The goals of this paper are: first, to develop the theoretical reduced-form framework needed to handle stochastic correlation of recovery and intensity, proposing a new class of models; second, to understand under what conditions would our class of models reflect empirically observed features and, finally, to use concrete model from our class to study the impact of this correlation in credit risk term structures.We show that, in our class of models, it is possible to model directly empirically observed features. For instance, we can define default intensity and losses given default to be higher during economic depression periods - the well-know credit risk business cycle effect. Using the concrete model we show that in reduced-form models different assumptions - concerning default intensities, distribution of losses given default, and specifically their correlation - have a significant impact on the shape of credit spread term structures, and consequently on pricing of credit products as well as credit risk assessment in general.Finally, we propose a way to calibrate this class of models to market data, and illustrate the technique using our concrete example using US market data on corporate yields.
Risk And Business Cycles
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Author : Tyler Cowen
language : en
Publisher: Routledge
Release Date : 2002-09-26
Risk And Business Cycles written by Tyler Cowen and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002-09-26 with Business & Economics categories.
In this book the author argues the case for the revival of an important role for monetary causes in business cycle theory, which challenges the current trend towards favouring purely real theories.
Policies To Mitigate Procyclicality
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Author : International Monetary Fund
language : en
Publisher: INTERNATIONAL MONETARY FUND
Release Date : 2009-05-07
Policies To Mitigate Procyclicality written by International Monetary Fund and has been published by INTERNATIONAL MONETARY FUND this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-05-07 with categories.
Global Business Cycles And Credit Risk
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Author : M. Hashem Pesaran
language : en
Publisher:
Release Date : 2005
Global Business Cycles And Credit Risk written by M. Hashem Pesaran and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Diversification in industry categories.
"The potential for portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the different types of risk factors. Using a global vector autoregressive macroeconomic model accounting for about 80% of world output, we propose a model for exploring credit risk diversification across industry sectors and across different countries or regions. We find that full firm-level parameter heterogeneity along with credit rating information matters a great deal for capturing differences in simulated credit loss distributions. These differences become more pronounced in the presence of systematic risk factor shocks: increased parameter heterogeneity reduces shock sensitivity. Allowing for regional parameter heterogeneity seems to better approximate the loss distributions generated by the fully heterogenous model than allowing just for industry heterogeneity. The regional model also exhibits less shock sensitivity"--National Bureau of Economic Research web site.
Credit Securitisations And Derivatives
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Author : Daniel Rösch
language : en
Publisher: John Wiley & Sons
Release Date : 2013-04-03
Credit Securitisations And Derivatives written by Daniel Rösch and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-04-03 with Business & Economics categories.
A comprehensive resource providing extensive coverage of the state of the art in credit secruritisations, derivatives, and risk management Credit Securitisations and Derivatives is a one-stop resource presenting the very latest thinking and developments in the field of credit risk. Written by leading thinkers from academia, the industry, and the regulatory environment, the book tackles areas such as business cycles; correlation modelling and interactions between financial markets, institutions, and instruments in relation to securitisations and credit derivatives; credit portfolio risk; credit portfolio risk tranching; credit ratings for securitisations; counterparty credit risk and clearing of derivatives contracts and liquidity risk. As well as a thorough analysis of the existing models used in the industry, the book will also draw on real life cases to illustrate model performance under different parameters and the impact that using the wrong risk measures can have.
On Recovery And Intensity S Correlation A New Class Of Credit Risk Models
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Author : Raquel M. Gaspar
language : en
Publisher:
Release Date : 2010
On Recovery And Intensity S Correlation A New Class Of Credit Risk Models written by Raquel M. Gaspar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
We start by presenting a reduced-form multiple default type of model and derive abstract results on the influence of a state variable X on credit spreads, when both the intensity and the loss quota distribution are driven by X. The aim is to apply the results to a concrete real life situation, namely, to the influence of macroeconomic risks on credit spreads term structures.There has been increasing support in the empirical literature that both the probability of default (PD) and the loss given default (LGD) are correlated and driven by macroeconomic variables. Paradoxically, there has been very little effort from the theoretical literature to develop credit risk models that would include this possibility. A possible justification has to do with the increase in complexity this leads to, even for the quot;treatablequot; default intensity models.The goal of this paper is to develop the theoretical framework needed to handle this situation and, through numerical simulation, understand the impact on credit risk term structures of the macroeconomic risks. In the proposed model the state of the economy is modeled trough the dynamics of a market index, that enters directly on the functional form of both the intensity of default and the distribution of the loss quota q given default. Given this setup, we are able to make periods of economic depression, periods of higher default intensity as well as periods where low recovery is more likely, producing a business cycle effect. Furthermore, we allow for the possibility of an index volatility that depends negatively on the index level and show that, when we include this realistic feature, the impacts on the credit spread term structure are emphasized.
Managing Credit Risk
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Author : John B. Caouette
language : en
Publisher: John Wiley & Sons
Release Date : 1998-11-03
Managing Credit Risk written by John B. Caouette and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 1998-11-03 with Business & Economics categories.
The first full analysis of the latest advances in managing credit risk. "Against a backdrop of radical industry evolution, the authors of Managing Credit Risk: The Next Great Financial Challenge provide a concise and practical overview of these dramatic market and technical developments in a book which is destined to become a standard reference in the field." -Thomas C. Wilson, Partner, McKinsey & Company, Inc. "Managing Credit Risk is an outstanding intellectual achievement. The authors have provided investors a comprehensive view of the state of credit analysis at the end of the millennium." -Martin S. Fridson, Financial Analysts Journal. "This book provides a comprehensive review of credit risk management that should be compulsory reading for not only those who are responsible for such risk but also for financial analysts and investors. An important addition to a significant but neglected subject." -B.J. Ranson, Senior Vice-President, Portfolio Management, Bank of Montreal. The phenomenal growth of the credit markets has spawned a powerful array of new instruments for managing credit risk, but until now there has been no single source of information and commentary on them. In Managing Credit Risk, three highly regarded professionals in the field have-for the first time-gathered state-of-the-art information on the tools, techniques, and vehicles available today for managing credit risk. Throughout the book they emphasize the actual practice of managing credit risk, and draw on the experience of leading experts who have successfully implemented credit risk solutions. Starting with a lucid analysis of recent sweeping changes in the U.S. and global financial markets, this comprehensive resource documents the credit explosion and its remarkable opportunities-as well as its potentially devastating dangers. Analyzing the problems that have occurred during its growth period-S&L failures, business failures, bond and loan defaults, derivatives debacles-and the solutions that have enabled the credit market to continue expanding, Managing Credit Risk examines the major players and institutional settings for credit risk, including banks, insurance companies, pension funds, exchanges, clearinghouses, and rating agencies. By carefully delineating the different perspectives of each of these groups with respect to credit risk, this unique resource offers a comprehensive guide to the rapidly changing marketplace for credit products. Managing Credit Risk describes all the major credit risk management tools with regard to their strengths and weaknesses, their fitness to specific financial situations, and their effectiveness. The instruments covered in each of these detailed sections include: credit risk models based on accounting data and market values; models based on stock price; consumer finance models; models for small business; models for real estate, emerging market corporations, and financial institutions; country risk models; and more. There is an important analysis of default results on corporate bonds and loans, and credit rating migration. In all cases, the authors emphasize that success will go to those firms that employ the right tools and create the right kind of risk culture within their organizations. A strong concluding chapter integrates emerging trends in the financial markets with the new methods in the context of the overall credit environment. Concise, authoritative, and lucidly written, Managing Credit Risk is essential reading for bankers, regulators, and financial market professionals who face the great new challenges-and promising rewards-of credit risk management.