1st Edition

Credit Risk Models, Derivatives, and Management

Edited By Niklas Wagner Copyright 2008
    598 Pages 94 B/W Illustrations
    by Chapman & Hall

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    Featuring contributions from leading international academics and practitioners, Credit Risk: Models, Derivatives, and Management illustrates how a risk management system can be implemented through an understanding of portfolio credit risks, a set of suitable models, and the derivation of reliable empirical results.

    Divided into six sections, the book

    •          Explores the rapidly developing area of credit derivative products, including iTraxx Futures, iTraxx Default Swaptions, and constant proportion debt obligations

    •          Addresses the relationships between the DJ iTraxx credit default swap (CDS) index and the stock market as well as CDS spreads and macroeconomic factors

    •          Investigates systematic and firm-specific default risk factors, compares CDS pricing results from the CreditGrades industry benchmark to a trinomial tree approach, and applies the Hull–White intensity-based model to the pricing of names from the CDX index

    •          Analyzes aggregate default and recovery rates on corporate bond defaults over a twenty-year period, the responses of hazard rates to changes in a set of economic variables, low-default portfolios, and tests on the accuracy of the Basel II framework

    •          Describes benchmark models of implied credit correlation risk, copula-based default dependence concepts, the fit of various copula models, and a common factor model of systematic credit risk

    •          Studies the pricing of options on single-name CDSs, the pricing of credit derivatives, collateralized debt obligation (CDO) price data, the pricing of CDO tranches, applications of Gaussian and Student’s t copula functions, and the pricing of CDOs

    Using mathematical models and methodologies, this volume provides the essential knowledge to properly manage credit risk and make sound financial decisions.

    Preface A View on Credit Derivatives
    Single Name Credit Default Swap Valuation: An Introductory Review
    Anouk G.P. Claes and Marc J.K. De Ceuster
    Valuation of Credit Derivatives with Counterparty Risk
    Volker Läger, Andreas Oehler, Marco Rummer, and Dirk Schiefer
    Integrated Credit Portfolio Management: A Preview
    Jochen Felsenheimer and Philip Gisdakis
    Credit Default Swaps and an Application to the Art Market: A Proposal
    Rachel A.J. Campbell and Christian Wiehenkamp
    Credit Risk, Spreads, and Spread Determinants
    Credit Default Swaps and Equity Prices: The iTraxx CDS Index Market
    Hans Byström
    The Determinants of CDS Prices: An Industry-Based Investigation
    Danielle Sougné, Cédric Heuchenne, and Georges Hübner
    Credit Spread Dynamics: Evidence from Latin America
    Kannan Thuraisamy, Gerry Gannon, and Jonathan A. Batten
    Accounting Data Transparency and Credit Spreads: Clinical Studies
    Umberto Cherubini
    Anticipating Credit Events Using Credit Default Swaps: An Application to Sovereign Debt Crises
    Jorge Antonio Chan-Lau
    Credit Risk Modeling and Pricing
    Investigating the Role of Systematic and Firm-Specific Factors in Default Risk: Lessons from Empirically Evaluating Credit Risk Models
    Gurdip Bakshi, Dilip Madan, and Frank Xiaoling Zhang
    Pricing CDX Credit Default Swaps with CreditGrades and Trinomial Trees
    Christian Stewart and Niklas Wagner
    Pricing CDX Credit Default Swaps Using the Hull–White Model
    Bastian Hofberger and Niklas Wagner
    Default Risk, Recovery Risk, and Rating
    The Link between Default and Recovery Rates: Theory, Empirical Evidence, and Implications
    Edward I. Altman, Brooks Brady, Andrea Resti, and Andrea Sironi
    Business and Financial Indicators: What Are the Determinants of Default Probability Changes?
    Fabien Couderc, Olivier Renault, and Olivier Scaillet
    Managing Credit Risk for Retail Low-Default Portfolios
    Gabriele Sabato
    Tests on the Accuracy of Basel II
    Simone Varotto
    Credit Risk Dependence and Dependent Defaults
    Correlation Risk: What the Market Is Telling Us and Does It Make Sense?
    Vineer Bhansali
    Copula-Based Default Dependence Modeling: Where Do We Stand?
    Elisa Luciano
    Correlated Default Processes: A Criterion-Based Copula Approach
    Sanjiv R. Das and Gary Geng
    Systematic Credit Risk: CDX Index Correlation and Extreme Dependence
    Sofiane Aboura and Niklas Wagner
    Options, Portfolios, and Pricing Loss Distribution Tranches
    CDS Options through Candidate Market Models and the CDS-Calibrated CIR++ Stochastic Intensity Model
    Damiano Brigo
    Arbitrage Pricing of Credit Derivatives
    Siu Lam Ho and Lixin Wu
    An Empirical Analysis of CDO Data
    Vincent Leijdekker, Martijn van der Voort, and Ton Vorst
    Pricing Tranched Credit Products with Generalized Multifactor Models
    Manuel Moreno, Juan I. Peña, and Pedro Serrano
    CDO Prices and Risk Management: A Comparative Study of Alternative Approaches for Pricing iTraxx
    Jean-Michel Bourdoux, Georges Hübner, and Jean-Roch Sibille
    Numerical Pricing of CDOs: A Monte Carlo Approach
    Manuel Moreno and Pedro Serrano


    Niklas Wagner

    Credit Risk: Models, Derivatives, and Management is the most comprehensive available volume of authoritative readings on credit risk modeling. Niklas Wagner has given us a package of 26 chapters by well-recognized authors, treating all major aspects of the subject, from the behavior of default probabilities, recovery, and correlation to the pricing of a wide range of single-name and multi-name credit products. Every practitioner covering the topic will appreciate access to this collection.”
    —Darrell Duffie, Dean Witter Distinguished Professor of Finance, The Graduate School of Business, Stanford University, California, USA

    "Well-recognized academics and industry experts offer their perspectives on current advances in credit risk modeling, pricing, and management . . . contains a nice mixture of theoretical and empirical contributions. In view of the current U.S. subprime mortgage loan crisis, CDO-based credit problems and several bankruptcies of financial institutions, this book is highly topical and offers valuable tools to both academics and practitioners alike."

    – Giacomo Bonanno, in Zentralblatt Math, 2009