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Credit risk
About: Credit risk is a research topic. Over the lifetime, 18595 publications have been published within this topic receiving 382866 citations.
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TL;DR: In this paper, the authors present a simple realistic approach for pricing and hedging counterparty risk in OTC derivatives accounting for default of both parties, and argue that to apply naive bilateral pricing of counter-party risk is rather dangerous.
Abstract: A recent trend in pricing counterparty credit risk for OTC derivatives has involved taking into account the bilateral nature of the risk so that an institution would reduce counterparty risk in line with their own default probability. Done to an extreme, this practice has worrying implications such as causing a derivatives portfolio with counterparty risk to be more valuable than the equivalent risk-free positions. In this paper, we argue that to apply naive bilateral pricing of counterparty risk is rather dangerous and we present a simple realistic approach for pricing and hedging counterparty risk in OTC derivatives accounting for default of both parties.
118 citations
TL;DR: In 2009, there were over 49,330 credit unions across 98 countries with more than 184 million members and approximately $1,354 billion in assets as mentioned in this paper and the regulatory environment within which credit unions operate is also explored under the themes of interest rate regulation, common bond requirements, taxation, deposit insurance and capital regulation.
Abstract: In 2009 there were over 49,330 credit unions across 98 countries with more than 184 million members and approximately $1,354 billion in assets. There is a great diversity within the credit union movement across these countries. This reflects the various economic, historic and cultural contexts within which credit unions operate. This paper traces the evolution of the credit union movement. It examines credit union objectives, and considers issues relating to efficiency, technology adoption, product diversification, merger, failure and demutualisation. The regulatory environment within which credit unions operate is also explored under the themes of interest rate regulation, common bond requirements, taxation, deposit insurance and capital regulation. The overview also considers demutualisation and the costs and benefits to credit unions of altering their organisational form.
118 citations
TL;DR: In this article, the authors evaluate the characteristics of a Point in Time (PiT) rating approach for the estimation of firms' credit risk in terms of procyclicality and show that ex-post smoothing is able to remove business cycle effects on the credit risk estimates and to produce a mitigation of obligors' migration among risk grades over time.
Abstract: This paper evaluates the characteristics of a Point in Time (PiT) rating approach for the estimation of firms’ credit risk in terms of procyclicality. To this end I first estimate a logit model for the probability default (PD) of a set of Italian non-financial firms during the period 2006-2012, then, in order to address the issue of rating stability (hedging against rating changes) during the financial crisis, I study the effectiveness of ex post smoothing of PDs in terms of obligors’ migration among rating risk grades. As a by-product I further discuss and analyse the role played by the choice of rating scale in producing ratings stability. The results show that ex post PD smoothing is able to remove business cycle effects on the credit risk estimates and to produce a mitigation of obligors’ migration among risk grades over time. The rating scale choice also has a significant impact on rating stability. These findings have important policy implications in banking sector practices in terms of the stability of the financial system.
118 citations
TL;DR: In this article, the authors provide a thorough assessment of Islamic banks' (IBs) liquidity risk compared to conventional banks (CBs) by employing a simultaneous structural equation approach on a comprehensive dataset of 52 IBs and CBs from selected Organization of Islamic Cooperation Countries for the period of 2007-2015.
118 citations
TL;DR: In this paper, a time series panel data framework is proposed for estimating and forecasting time-varying corporate default rates subject to observed and unobserved risk factors. But the model does not capture different omitted effects at different times.
118 citations