An Introduction to Credit Risk Modeling

In today's increasingly competitive financial world, successful risk management, portfolio management, and financial structuring demand more than up-to-date financial know-how. They also call for quantitative expertise, including the ability to effectively apply mathematical modeling tools and techniques. An Introduction to Credit Risk Modeling supplies both the bricks and the mortar of risk management. In a gentle and concise lecture-note style, it introduces the fundamentals of credit risk management, provides a broad treatment of the related modeling theory and methods, and explores their application to credit portfolio securitization, credit risk in a trading portfolio, and credit derivatives risk. The presentation is thorough but refreshingly accessible, foregoing unnecessary technical details yet remaining mathematically precise. Whether you are a risk manager looking for a more quantitative approach to credit risk or you are planning a move from the academic arena to a career in professional credit risk management, An Introduction to Credit Risk Modeling is the book you've been looking for. It will bring you quickly up to speed with information needed to resolve the questions and quandaries encountered in practice.

Table of Contents:
THE BASICS OF CREDIT RISK MANAGEMENT Expected Loss Unexpected Loss Regulatory Capital and the Basel Initiative MODELLING CORRELATED DEFAULTS The Bernoulli Model The Poisson Model Bernoulli Versus Poisson Mixture An Overview of Today's Industry Models One-Factor/Sector Models Loss Distributions by Means of Copula Functions Working Example: Estimation of Asset Correlations ASSET VALUE MODELS Introduction and A Small Guide to the Literature A Few Words About Calls and Puts Merton's Asset Value Model Transforming Equity into Asset Values: A Working Approach THE CREDITRISK+ MODEL The Modeling Framework of CreditRisk+ Construction Step 1: Independent Obligors Construction Step 2: Sector Model ALTERNATIVE RISK MEASURES AND CAPITAL ALLOCATION Coherent Risk Measures and Conditional Shortfall Contributory Capital TERM STRUCTURE OF DEFAULT PROBABILITY Survival Function and Hazard Rate Risk-neutral vs. Actual Default Probabilities Term Structure Based on Historical Default Information 3. Term Structure Based on Market Spreads CREDIT DERIVATIVES Total Return Swaps Credit Default Products Basket Credit Derivatives Credit Spread Products Credit-Linked Notes COLLATERALIZED DEBT OBLIGATIONS Introduction to Collateralized Debt Obligations Different Roles of Banks in the CDO Market CDOs from the Modeling Point of View Rating Agency Models: Moody's BET Conclusion Some Remarks on the Literature Remarks REFERENCES

Review :
"This is an outstanding book on the default models that are used internally by financial institutions. This practical book delves into the mathematics, the assumptions and the approximations that practitioners apply to make these models work." —Glyn A. Holton, Contingency Analysis "There are so many financial tools available today and numbers are likely to grow in the future. If you work in this field of credit risk modeling, it is worth looking at the theoretical background, and this book is a well-rounded introduction." —Journal of the Operational Research Society "As an introductory survey, it does an admirable job. … this book is an important guide into the field of credit risk models. Mainly for the practitioner … It is well written, fairly easy to follow." —Horst Behncke, Zentralblatt Math