Default risk
Correlation evidence
Like ratings, default correlation is an area of fierce industry debate. But any fundamental, long-term investor searching for fair value in credit correlation will want to understand what the historical data actually says. Here, Arnaud de Servigny and…
The road to partition
Applying the ensemble approach developed in these pages last month, Kevin Thompson and Roland Ordovas calculate risk contributions and show how to measure higher-order default dependence using the method of partitions. The results provide tools allowing…
Credit ensemble
Kevin Thompson and Roland Ordovas address the question of how individual counterparties contribute to the total credit risk of a portfolio. They provide an analytic method, new to credit modelling, to estimate all joint default statistics conditional…
Sponsor's article > No cure through the cycle
Some have argued that the antidote for pro-cyclicality in the Basel II capital requirements is the use of 'through-the-cycle' estimates of default and recovery rates. David Rowe argues that, whilethis might mitigate the pro-cyclical impact of the Accord,…
US-based Basel opponents cry "foul" on commercial real estate
Small and medium-sized US banks will be hit hard by the treatment of commercial real estate under the proposed revisions to the Basel Accord, according to Sarah Moore, chief operating officer of the Colonial Bank Group, a regional US bank, at…
Sponsor's article > The role of correlation
David Rowe surveys recent research on the role of correlation between probability of default and recovery rates, as well as among default probabilities.
Credit and credibility
Credit risk modellers have made giant strides, but they still have to convince regulators that they can make the world a safer place.
Loan portfolio value
Using a conditional independence framework, Oldrich Vasicek derives a useful limiting form for the portfolio loss distribution with a single systematic factor. He then derives a risk-neutral distribution suitable for traded portfolios, and shows how…
Loan portfolio value
Using a conditional independence framework, Oldrich Vasicek derives a useful limiting form for the portfolio loss distribution with a single systematic factor. He then derives a risk-neutral distribution suitable for traded portfolios, and shows how…
S&P acquires Default Filter from IQ Financial
Standard & Poor’s (S&P) has acquired the Default Filter credit risk management assets from risk management software company IQ Financial Systems.
The need for hybrid models
In response to the above article, the authors argue that pure firm-value approaches to default prediction are fundamentally flawed.?
Predictive Merton models
Do default indicators such as agency ratings improve upon the predictive power of KMV’s proprietary default prediction methodology?
Pricing default baskets
Nicholas Dunbar, Risk’s technical editor, introduces the first in a new series of technical papers written by quants at Deutsche Bank.“Default correlation has been one of the hottest topics in credit derivatives over the past year. So it is a pleasure to…
Equity to credit pricing
Default models
Banking on progress
A dizzying array of credit risk technology firms have set up shop in Asia in order to reap the rewards of the new Basel recommendations. But are Asia’s regional banks ready to implement these systems?
Probing granularity
The granularity adjustment, which adjusts risk weightings for credit portfolio diversification, is one of Basel II’s key modelling assumptions. Here, Tom Wilde uncovers a weakness in this assumption arising from the differences in the underlying credit…
How dependent are defaults?
Credit portfolio management
Modelling default correlation
Credit risk
Depressing recoveries
Credit risk
HJM with multiples
Term structure of credit
The price of credit
Masterclass – with JP Morgan
Integrating correlations
Credit risk