Semi Markov Migration Models For Credit Risk

Author : Guglielmo D'Amico,Giuseppe Di Biase,Jacques Janssen,Raimondo Manca
Publisher : John Wiley & Sons
Page : 316 pages
File Size : 47,6 Mb
Release : 2017-05-24
Category : Mathematics
ISBN : 9781119415114

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Semi-Markov Migration Models for Credit Risk by Guglielmo D'Amico,Giuseppe Di Biase,Jacques Janssen,Raimondo Manca Pdf

Credit risk is one of the most important contemporary problems for banks and insurance companies. Indeed, for banks, more than forty percent of the equities are necessary to cover this risk. Though this problem is studied by large rating agencies with substantial economic, social and financial tools, building stochastic models is nevertheless necessary to complete this descriptive orientation. This book presents a complete presentation of such a category of models using homogeneous and non-homogeneous semi-Markov processes developed by the authors in several recent papers. This approach provides a good method of evaluating the default risk and the classical VaR indicators used for Solvency II and Basel III governance rules. This book is the first to present a complete semi-Markov treatment of credit risk while also insisting on the practical use of the models presented here, including numerical aspects, so that this book is not only useful for scientific research but also to managers working in this field for banks, insurance companies, pension funds and other financial institutions.

Author : Stefan Trueck,Svetlozar T. Rachev
Publisher : Academic Press
Page : 279 pages
File Size : 48,5 Mb
Release : 2009-01-15
Category : Business & Economics
ISBN : 9780080920306

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Rating Based Modeling of Credit Risk by Stefan Trueck,Svetlozar T. Rachev Pdf

In the last decade rating-based models have become very popular in credit risk management. These systems use the rating of a company as the decisive variable to evaluate the default risk of a bond or loan. The popularity is due to the straightforwardness of the approach, and to the upcoming new capital accord (Basel II), which allows banks to base their capital requirements on internal as well as external rating systems. Because of this, sophisticated credit risk models are being developed or demanded by banks to assess the risk of their credit portfolio better by recognizing the different underlying sources of risk. As a consequence, not only default probabilities for certain rating categories but also the probabilities of moving from one rating state to another are important issues in such models for risk management and pricing. It is widely accepted that rating migrations and default probabilities show significant variations through time due to macroeconomics conditions or the business cycle. These changes in migration behavior may have a substantial impact on the value-at-risk (VAR) of a credit portfolio or the prices of credit derivatives such as collateralized debt obligations (D+CDOs). In Rating Based Modeling of Credit Risk the authors develop a much more sophisticated analysis of migration behavior. Their contribution of more sophisticated techniques to measure and forecast changes in migration behavior as well as determining adequate estimators for transition matrices is a major contribution to rating based credit modeling. Internal ratings-based systems are widely used in banks to calculate their value-at-risk (VAR) in order to determine their capital requirements for loan and bond portfolios under Basel II One aspect of these ratings systems is credit migrations, addressed in a systematic and comprehensive way for the first time in this book The book is based on in-depth work by Trueck and Rachev

Author : Tomasz R. Bielecki,Marek Rutkowski
Publisher : Springer Science & Business Media
Page : 517 pages
File Size : 43,8 Mb
Release : 2013-03-14
Category : Business & Economics
ISBN : 9783662048214

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Credit Risk: Modeling, Valuation and Hedging by Tomasz R. Bielecki,Marek Rutkowski Pdf

The motivation for the mathematical modeling studied in this text on developments in credit risk research is the bridging of the gap between mathematical theory of credit risk and the financial practice. Mathematical developments are covered thoroughly and give the structural and reduced-form approaches to credit risk modeling. Included is a detailed study of various arbitrage-free models of default term structures with several rating grades.

Author : Christian Bluhm,Ludger Overbeck,Christoph Wagner
Publisher : CRC Press
Page : 386 pages
File Size : 41,5 Mb
Release : 2016-04-19
Category : Business & Economics
ISBN : 9781584889939

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Introduction to Credit Risk Modeling by Christian Bluhm,Ludger Overbeck,Christoph Wagner Pdf

Contains Nearly 100 Pages of New MaterialThe recent financial crisis has shown that credit risk in particular and finance in general remain important fields for the application of mathematical concepts to real-life situations. While continuing to focus on common mathematical approaches to model credit portfolios, Introduction to Credit Risk Modelin

Author : P.-C.G. Vassiliou
Publisher : CRC Press
Page : 607 pages
File Size : 42,7 Mb
Release : 2022-12-21
Category : Mathematics
ISBN : 9781351980708

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Non-Homogeneous Markov Chains and Systems by P.-C.G. Vassiliou Pdf

Non-Homogeneous Markov Chains and Systems: Theory and Applications fulfills two principal goals. It is devoted to the study of non-homogeneous Markov chains in the first part, and to the evolution of the theory and applications of non-homogeneous Markov systems (populations) in the second. The book is self-contained, requiring a moderate background in basic probability theory and linear algebra, common to most undergraduate programs in mathematics, statistics, and applied probability. There are some advanced parts, which need measure theory and other advanced mathematics, but the readers are alerted to these so they may focus on the basic results. Features A broad and accessible overview of non-homogeneous Markov chains and systems Fills a significant gap in the current literature A good balance of theory and applications, with advanced mathematical details separated from the main results Many illustrative examples of potential applications from a variety of fields Suitable for use as a course text for postgraduate students of applied probability, or for self-study Potential applications included could lead to other quantitative areas The book is primarily aimed at postgraduate students, researchers, and practitioners in applied probability and statistics, and the presentation has been planned and structured in a way to provide flexibility in topic selection so that the text can be adapted to meet the demands of different course outlines. The text could be used to teach a course to students studying applied probability at a postgraduate level or for self-study. It includes many illustrative examples of potential applications, in order to be useful to researchers from a variety of fields.

Author : Marine Habart-Corlosquet,Jacques Janssen,Raimondo Manca
Publisher : John Wiley & Sons
Page : 176 pages
File Size : 50,8 Mb
Release : 2013-05-06
Category : Business & Economics
ISBN : 9781118733981

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VaR Methodology for Non-Gaussian Finance by Marine Habart-Corlosquet,Jacques Janssen,Raimondo Manca Pdf

With the impact of the recent financial crises, more attention must be given to new models in finance rejecting “Black-Scholes-Samuelson” assumptions leading to what is called non-Gaussian finance. With the growing importance of Solvency II, Basel II and III regulatory rules for insurance companies and banks, value at risk (VaR) – one of the most popular risk indicator techniques plays a fundamental role in defining appropriate levels of equities. The aim of this book is to show how new VaR techniques can be built more appropriately for a crisis situation. VaR methodology for non-Gaussian finance looks at the importance of VaR in standard international rules for banks and insurance companies; gives the first non-Gaussian extensions of VaR and applies several basic statistical theories to extend classical results of VaR techniques such as the NP approximation, the Cornish-Fisher approximation, extreme and a Pareto distribution. Several non-Gaussian models using Copula methodology, Lévy processes along with particular attention to models with jumps such as the Merton model are presented; as are the consideration of time homogeneous and non-homogeneous Markov and semi-Markov processes and for each of these models. Contents 1. Use of Value-at-Risk (VaR) Techniques for Solvency II, Basel II and III. 2. Classical Value-at-Risk (VaR) Methods. 3. VaR Extensions from Gaussian Finance to Non-Gaussian Finance. 4. New VaR Methods of Non-Gaussian Finance. 5. Non-Gaussian Finance: Semi-Markov Models.

Author : Matthew T. Jones
Publisher : INTERNATIONAL MONETARY FUND
Page : 27 pages
File Size : 50,6 Mb
Release : 2005-11-01
Category : Electronic
ISBN : 1451862385

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Estimating Markov Transition Matrices Using Proportions Data: An Application to Credit Risk by Matthew T. Jones Pdf

This paper outlines a way to estimate transition matrices for use in credit risk modeling with a decades-old methodology that uses aggregate proportions data. This methodology is ideal for credit-risk applications where there is a paucity of data on changes in credit quality, especially at an aggregate level. Using a generalized least squares variant of the methodology, this paper provides estimates of transition matrices for the United States using both nonperforming loan data and interest coverage data. The methodology can be employed to condition the matrices on economic fundamentals and provide separate transition matrices for expansions and contractions, for example. The transition matrices can also be used as an input into other credit-risk models that use transition matrices as a basic building block.

Author : David Lando
Publisher : Princeton University Press
Page : 328 pages
File Size : 49,5 Mb
Release : 2009-12-13
Category : Business & Economics
ISBN : 9781400829194

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Credit Risk Modeling by David Lando Pdf

Credit risk is today one of the most intensely studied topics in quantitative finance. This book provides an introduction and overview for readers who seek an up-to-date reference to the central problems of the field and to the tools currently used to analyze them. The book is aimed at researchers and students in finance, at quantitative analysts in banks and other financial institutions, and at regulators interested in the modeling aspects of credit risk. David Lando considers the two broad approaches to credit risk analysis: that based on classical option pricing models on the one hand, and on a direct modeling of the default probability of issuers on the other. He offers insights that can be drawn from each approach and demonstrates that the distinction between the two approaches is not at all clear-cut. The book strikes a fruitful balance between quickly presenting the basic ideas of the models and offering enough detail so readers can derive and implement the models themselves. The discussion of the models and their limitations and five technical appendixes help readers expand and generalize the models themselves or to understand existing generalizations. The book emphasizes models for pricing as well as statistical techniques for estimating their parameters. Applications include rating-based modeling, modeling of dependent defaults, swap- and corporate-yield curve dynamics, credit default swaps, and collateralized debt obligations.

Author : Lyn C. Thomas
Publisher : Unknown
Page : 25 pages
File Size : 53,7 Mb
Release : 1999
Category : Bonds
ISBN : 072980447X

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A Hidden Markov Chain Model for the Term Structure of Bond Credit Risk Spreads by Lyn C. Thomas Pdf

Author : Philipp J. Schönbucher
Publisher : John Wiley & Sons
Page : 396 pages
File Size : 41,8 Mb
Release : 2003-10-31
Category : Business & Economics
ISBN : 9780470868171

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Credit Derivatives Pricing Models by Philipp J. Schönbucher Pdf

The credit derivatives market is booming and, for the first time, expanding into the banking sector which previously has had very little exposure to quantitative modeling. This phenomenon has forced a large number of professionals to confront this issue for the first time. Credit Derivatives Pricing Models provides an extremely comprehensive overview of the most current areas in credit risk modeling as applied to the pricing of credit derivatives. As one of the first books to uniquely focus on pricing, this title is also an excellent complement to other books on the application of credit derivatives. Based on proven techniques that have been tested time and again, this comprehensive resource provides readers with the knowledge and guidance to effectively use credit derivatives pricing models. Filled with relevant examples that are applied to real-world pricing problems, Credit Derivatives Pricing Models paves a clear path for a better understanding of this complex issue. Dr. Philipp J. Schönbucher is a professor at the Swiss Federal Institute of Technology (ETH), Zurich, and has degrees in mathematics from Oxford University and a PhD in economics from Bonn University. He has taught various training courses organized by ICM and CIFT, and lectured at risk conferences for practitioners on credit derivatives pricing, credit risk modeling, and implementation.

Author : Patrick N. Catlere
Publisher : Unknown
Page : 0 pages
File Size : 55,6 Mb
Release : 2009
Category : Financial futures
ISBN : 1606926659

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Financial Hedging by Patrick N. Catlere Pdf

Financial hedging refers to taking out investments in order to reduce or cancel the risk in another investment. Its purpose is to minimise unwanted business risk while still allowing the business to profit from investment activity. The problem of credit risk is one of the most important problems in finance. It consists of computing the probability of a firm defaulting on a debt. The time evolution of rating for credit risk models can be studied by means of Markov transition models. This book looks at the homogeneous and non-homogeneous semi-Markov backward credit risk migration models. A joint optimisation model for a firm's hedging and leverage decisions is also examined to help establish an integrated framework for value creation. Rather than artificially separating the two interrelated parts of the firm's financial policy, both corporate decision variables are treated as endogenous. Furthermore, the cross-sectional variation in indirect bankruptcy costs is discussed, possibly resulting from a deterioration of relationships with customers, suppliers or other stakeholders prior to the legal act of bankruptcy. The effect of probability weighting on hedging decisions is explored in this book. Observed hedge ratios in a storage context are close to zero in many situations and often smaller than the standard minimum-variance hedge zero. Thus, the importance of probability weighting in decision making and how it can cause dramatic changes in behavior is looked at. This book also re-examines hedging performance of the minimum variance hedge ratios (MVHR) estimated using both the OLS and the GARCH-type models with S&P 500 index futures contracts. In particular, the out-of-sample comparison of hedging performance of the MVHRs under different market volatility regimes are looked at. In addition, the analysis for parametric and non-parametric Markov processes are discussed and the construction of the transition matrix in these two different cases. Several possible strategies where the investors recalibrate their portfolios at a fixed temporal horizon are proposed. The authors also show how the Markov assumption can be used to forecast the portfolio returns and some simple empirical comparisons between Markovian strategies and classic reward-risk ones. Finally, articles in this book contribute to the literature on futures hedging in commodity futures markets by using wavelet transform analysis to define an explicit and tractable concept of time horizon. Differences in hedge ratios are discussed both across commodities and, for each commodity, over all time horizons of decision-making.

Author : Anonim
Publisher : Rozenberg Publishers
Page : 221 pages
File Size : 53,6 Mb
Release : 2008
Category : Electronic
ISBN : 9789051709292

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The dynamics of cooperate credit risk. An intensity-based econometric by Anonim Pdf

Author : Lyn C. Thomas
Publisher : Unknown
Page : 36 pages
File Size : 40,6 Mb
Release : 2001
Category : Electronic
ISBN : OCLC:1290403941

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A Hidden Markov Chain Model for the Term Structure of Bond Credit Risk Spreads by Lyn C. Thomas Pdf

This paper provides a Markov chain model for the term structure and credit risk spreads of bond prices. It allows dependency between the stochastic process modeling the interest rate and the Markov chain process describing changes in the credit rating of the bonds by their mutual dependency on a hidden Markov chain, which can be thought of as describing the underlying economic conditions. The model also allows a new interpretation of risk premia used in previous approaches and also uses a linear programming approach to strip the bonds of their coupons in such a way as to guarantee there is no mis-pricing.

Author : Anthony Saunders,Linda Allen
Publisher : John Wiley & Sons
Page : 337 pages
File Size : 54,8 Mb
Release : 2002-10-06
Category : Business & Economics
ISBN : 9780471274766

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Credit Risk Measurement by Anthony Saunders,Linda Allen Pdf

The most cutting-edge read on the pricing, modeling, and management of credit risk available The rise of credit risk measurement and the credit derivatives market started in the early 1990s and has grown ever since. For many professionals, understanding credit risk measurement as a discipline is now more important than ever. Credit Risk Measurement, Second Edition has been fully revised to reflect the latest thinking on credit risk measurement and to provide credit risk professionals with a solid understanding of the alternative approaches to credit risk measurement. This readable guide discusses the latest pricing, modeling, and management techniques available for dealing with credit risk. New chapters highlight the latest generation of credit risk measurement models, including a popular class known as intensity-based models. Credit Risk Measurement, Second Edition also analyzes significant changes in banking regulations that are impacting credit risk measurement at financial institutions. With fresh insights and updated information on the world of credit risk measurement, this book is a must-read reference for all credit risk professionals. Anthony Saunders (New York, NY) is the John M. Schiff Professor of Finance and Chair of the Department of Finance at the Stern School of Business at New York University. He holds positions on the Board of Academic Consultants of the Federal Reserve Board of Governors as well as the Council of Research Advisors for the Federal National Mortgage Association. He is the editor of the Journal of Banking and Finance and the Journal of Financial Markets, Instruments and Institutions. Linda Allen (New York, NY) is Professor of Finance at Baruch College and Adjunct Professor of Finance at the Stern School of Business at New York University. She also is author of Capital Markets and Institutions: A Global View (Wiley: 0471130494). Over the years, financial professionals around the world have looked to the Wiley Finance series and its wide array of bestselling books for the knowledge, insights, and techniques that are essential to success in financial markets. As the pace of change in financial markets and instruments quickens, Wiley Finance continues to respond. With critically acclaimed books by leading thinkers on value investing, risk management, asset allocation, and many other critical subjects, the Wiley Finance series provides the financial community with information they want. Written to provide professionals and individuals with the most current thinking from the best minds in the industry, it is no wonder that the Wiley Finance series is the first and last stop for financial professionals looking to increase their financial expertise.

Author : V. G. Kulkarni
Publisher : Springer
Page : 313 pages
File Size : 50,8 Mb
Release : 2010-11-03
Category : Mathematics
ISBN : 9781441917720

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Introduction to Modeling and Analysis of Stochastic Systems by V. G. Kulkarni Pdf

This book provides a self-contained review of all the relevant topics in probability theory. A software package called MAXIM, which runs on MATLAB, is made available for downloading. Vidyadhar G. Kulkarni is Professor of Operations Research at the University of North Carolina at Chapel Hill.