Martin Knoch

Credit Risk: Recent Advances Martin Knoch

Diplomarbeit, die am 01.05.1999 erfolgreich an einer Technische Universität in Deutschland eingereicht wurde. Abstract: We discuss the main approaches to quantify the risk of losses arising from a defaulting counterparty to a financial transaction that have been developed over the last 25 years. Every existing method faces major problems in assessing the numerous and partly non-observable factors influencing credit risk. One shortcoming common to all methods is the classical normal assumption for interest rate changes and asset returns. Therefore we suggest the introduction of stable Paretian models to yield more realistic credit spreads. Table of Contents: 1.|Introduction| 2.|Basic Properties of Credit Risk Models| 2.1|Financial Position| 2.2|Default Probability| 2.3|The Price Of Credit Risk| 3.|Structural Models| 3.1|Structural Models With Constant Interest Rates| 3.2|Structural Models With Stochastic Interest Rates| 4.|Reduced Form Models| 4.1|Terminology of Reduced Form Models| 4.1.1|Credit Risk and Credit Events| 4.1.2|Rating Categories and Transition Matrices| 4.2|Reduced Form Modesl With Default Rates| 4.3|Reduced Form Models With Rating Transitions| 4.3.1|Modelling Rating Histories With Markov Chains| 4.3.2|The Introduction of Pseudo-Probabilities| 4.3.3|Parameter Estimation| 5.|Models With Implied Credit Spread| 6.|Hybrid Models| 6.1|Rating Transitions| 6.2|Forward Prices| 6.3|The Distribution of Values| 6.3.1|Distributions in Credit Risk and Market Risk Measurement| 6.4|Expected Loss| 6.5|Unexpected Loss| 6.6|Example| 7.|Rating Categories| 7.1|Alternative Credit Analysis And Rating Methodology| 7.2|Example. Standard&Poor's Corporate Rating| 7.2.1|Rating Categories| 7.2.2|The Rating Process| 7.2.3|Credit Analysis Factors| 7.3|Split Ratings| 8.|Transition Matrices| 8.1|Default Probabilities| 8.1.1|Estimating Default Probabilities| 8.1.2|Errors Arising From Default Estimation