Topic
Credit risk
About: Credit risk is a research topic. Over the lifetime, 18595 publications have been published within this topic receiving 382866 citations.
Papers published on a yearly basis
Papers
More filters
Book•
20 Nov 2001TL;DR: In this article, the authors present a comprehensive survey of the past developments in the area of credit risk research, as well as to put forth the most recent advancements in this field.
Abstract: The main objective of Credit Risk: Modeling, Valuation and Hedging is to present a comprehensive survey of the past developments in the area of credit risk research, as well as to put forth the most recent advancements in this field. An important aspect of this text is that it attempts to bridge the gap between the mathematical theory of credit risk and the financial practice, which serves as the motivation for the mathematical modeling studied in the book. Mathematical developments are presented in a thorough manner and cover the structural (value-of-the-firm) and the reduced (intensity-based) approaches to credit risk modeling, applied both to single and to multiple defaults. In particular, the book offers a detailed study of various arbitrage-free models of defaultable term structures with several rating grades. This volume will serve as a valuable reference for financial analysts and traders involved with credit derivatives. Some aspects of the book may also be useful for market practitioners engaged in managing credit-risk sensitive portfolios. Graduate students and researchers in areas such as finance theory, mathematical finance, financial engineering and probability theory will benefit from the book as well. On the technical side, readers are assumed to be familiar with graduate level probability theory, theory of stochastic processes, and elements of stochastic analysis and PDEs some aquaintance with arbitrage pricing theory is also expected. A systematic exposition of mathematical techniques underlying the intensity-based approach is however provided.
1,222 citations
TL;DR: In this paper, the effect of the Federal Reserve's purchase of long-term Treasuries and other longterm bonds (QE1 in 2008-09 and QE2 in 2010-11) on interest rates was evaluated using an event-study methodology.
Abstract: We evaluate the effect of the Federal Reserve's purchase of long-term Treasuries and other long-term bonds (QE1 in 2008-09 and QE2 in 2010-11) on interest rates. Using an event-study methodology, we reach two main conclusions. First, it is inappropriate to focus only on Treasury rates as a policy target, because quantitative easing works through several channels that affect particular assets differently. We find evidence for a signaling channel, a unique demand for long-term safe assets, and an inflation channel for both QE1 and QE2, and a mortgage-backed securities (MBS) prepayment channel and a corporate bond default risk channel for QE1 only. Second, effects on particular assets depend critically on which assets are purchased. The event study suggests that MBS purchases in QE1 were crucial for lowering MBS yields as well as corporate credit risk and thus corporate yields for QE1, and Treasuries-only purchases in QE2 had a disproportionate effect on Treasuries and agency bonds relative to MBSs and corporate bonds, with yields on the latter falling primarily through the market's anticipation of lower future federal funds rates.
1,116 citations
Posted Content•
TL;DR: In this article, the authors present the first systematic analysis of the determinants and impact of thesovereign credit ratings assigned by the two leading U.S.agencies, Moody's Investors Service and Standard and Poor's.
Abstract: n recent years, the demand for sovereign credit rat-ings—the risk assessments assigned by the creditrating agencies to the obligations of central govern-ments—has increased dramatically. More govern-ments with greater default risk and more companiesdomiciled in riskier host countries are borrowing in inter-national bond markets. Although foreign government offi-cials generally cooperate with the agencies, ratingassignments that are lower than anticipated often promptissuers to question the consistency and rationale of sover-eign ratings. How clear are the criteria underlying sover-eign ratings? Moreover, how much of an impact do ratingshave on borrowing costs for sovereigns?To explore these questions, we present the firstsystematic analysis of the determinants and impact of thesovereign credit ratings assigned by the two leading U.S.agencies, Moody’s Investors Service and Standard andPoor’s.
1,060 citations
TL;DR: In this paper, the relationship between credit default swap spreads and bond yields was examined and conclusions on the benchmark risk-free rate used by participants in the credit derivatives market were reached.
Abstract: A company’s credit default swap spread is the cost per annum for protection against a default by the company. In this paper we analyze data on credit default swap spreads collected by a credit derivatives broker. We first examine the relationship between credit default spreads and bond yields and reach conclusions on the benchmark risk-free rate used by participants in the credit derivatives market. We then carry out a series of tests to explore the extent to which credit rating announcements by Moody’s are anticipated by participants in the credit default swap market.
1,037 citations
TL;DR: In this article, a review of the current proposed industry sponsored Credit Value-at-Risk methodologies is presented, which is based on the probability of moving from one credit quality to another, including default, within a given time horizon.
Abstract: The new BIS 1998 capital requirements for market risks allows banks to use internal models to assess regulatory capital related to both general market risk and credit risk for their trading book. This paper reviews the current proposed industry sponsored Credit Value-at-Risk methodologies. First, the credit migration approach, as proposed by JP Morgan with CreditMetrics, is based on the probability of moving from one credit quality to another, including default, within a given time horizon. Second, the option pricing, or structural approach, as initiated by KMV and which is based on the asset value model originally proposed by Merton (Merton, R., 1974. Journal of Finance 28, 449‐470). In this model the default process is endogenous, and relates to the capital structure of the firm. Default occurs when the value of the firm’s assets falls below some critical level. Third, the actuarial approach as proposed by Credit Suisse Financial Products (CSFP) with CreditRisk+ and which only focuses on default. Default for individual bonds or loans is assumed to follow an exogenous Poisson process. Finally, McKinsey proposes CreditPortfolioView which is a discrete time multi-period model where default probabilities are conditional on the macro-variables like unemployment, the level of interest rates, the growth rate in the economy, ... which to a large extent drive the credit cycle in the economy. ” 2000 Elsevier Science B.V. All rights reserved.
1,019 citations