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- Product code: 15728
- ISBN: 0691090467,
ISBN13: 9780691090467,
464 pages, hardback
Published by Princeton University Press on 2003
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Description of Credit Risk |
In this book, two of America's leading economists provide the first integrated treatment of the conceptual, practical, and empirical foundations for credit risk pricing and risk measurement. Masterfully applying theory to practice, Darrell Duffie and Kenneth Singleton model credit risk for the purpose of measuring portfolio risk and pricing defaultable bonds, credit derivatives, and other securities exposed to credit risk. The methodological rigor, scope, and sophistication of their state-of-the-art account is unparalleled, and its singularly in-depth treatment of pricing and credit derivatives further illuminates a problem that has drawn much attention in an era when financial institutions the world over are revising their credit management strategies. Duffie and Singleton offer critical assessments of alternative approaches to credit-risk modeling, while highlighting the strengths and weaknesses of current practice. Their approach blends in-depth discussions of the conceptual foundations of modeling with extensive analyses of the empirical properties of such credit-related time series as default probabilities, recoveries, ratings transitions, and yield spreads.
Both the 'structura' and 'reduced-form' approaches to pricing defaultable securities are presented, and their comparative fits to historical data are assessed. The authors also provide a comprehensive treatment of the pricing of credit derivatives, including credit swaps, collateralized debt obligations, credit guarantees, lines of credit, and spread options. Not least, they describe certain enhancements to current pricing and management practices that, they argue, will better position financial institutions for future changes in the financial markets. "Credit Risk" is an indispensable resource for risk managers, traders or regulators dealing with financial products with a significant credit risk component, as well as for academic researchers and students.
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Reviews"A clear and comprehensive treatment of credit risk models by two of the leading authorities in the field. It will become the standard reference for both academic researchers and practitioners."
- Michael J. Brennan, The Anderson School at UCLA
"Duffie and Singleton provide the first comprehensive, yet readable, treatment of the challenging subject of credit risk. This book will undoubtedly become the ultimate reference for both academics and risk professionals who care to venture beyond the traditional alleys."
- Michel Crouhy, Head of Business Analytic Solutions, Canadian Imperial Bank of Commerce
"Duffie and Singleton have written an indispensable guide both to the models and to their implementation. The mathematical workings of the models are conveyed with superb clarity and intuition. Just as importantly, the presentation is well grounded in the economic and institutional features of credit markets. We thereby gain insight into the empirical plausibility of modeling assumptions and guidance on robust model calibration."
- Michael Gordy
"Darrell Duffie and Kenneth Singleton have set the standard on credit modeling. Not only is the book appealing to an academic but it also speaks to practitioners. It has the double virtue of being elegant and practical. Further, many if not most of the results are original to the authors."
- Larry Eisenberg, President, The Risk Engineering Company
"I like this book very much and shall use it profitably both for my own research and teaching. Duffie and Singleton develop the intellectual basis for understanding, modeling, and measuring credit risk and then develop the issue of risk management. This approach is both intuitive and natural. I can think of no scholars better qualified than they to embark on this ambitious task."
- Suresh M. Sundaresan, Graduate School of Business, Columbia University
| Contents of Credit Risk |
Preface
Acknowledgments
1. Introduction
1.1. A Brief Zoology of Risks
1.2. Organization of Topics
2. Economic Principles of Risk Management
2.1. What Types of Risk Count Most?
2.2. Economics of Market Risk
2.3. Economic Principles of Credit Risk
2.4. Risk Measurement
2.5. Measuring Credit Risk
3. Default Arrival: Historical Patterns and Statistical Models
3.1. Introduction
3.2. Structural Models of Default Probability
3.3. From Theor to Practice: Using Distance to Default to Predict Default
3.4. Default Intensity
3.5. Examples of Intensity Models
3.6. Default-Time Simulation
3.7. Statistical Prediction of Bankruptcy
4. Ratings Transitions: Historical Patterns and Statistical Models
4.1. Average Transition Frequencies
4.2. Ratings Risk and the Business Cycle
4.3. Ratings Transitions and Aging
4.4. Ordered Probits of Ratings
4.5. Ratings as Markov Chains
5. Conceptual Approaches to Valuation of Default Risk
5.1. Introduction
5.2. Risk-Neutral versus Actual Probabilities
5.3. Reduced-Form Pricing
5.4. Structural Models
5.5. Comparisons of Model-Implied Spreads
5.6. From Actual to Risk-Neutral Intensities
6. Pricing Corporate and Sovereign Bonds
6.1. Uncertain Recover
6.2. Reduced-Form Pricing with Recover
6.3. Ratings-Based Models of Credit Spreads
6.4. Pricing Sovereign Bonds
7. Empirical Models of Defaultable Bond Spreads
7.1. Credit Spreads and Economic Activity
7.2. Reference Curves for Spreads
7.3. Parametric Reduced-Form Models
7.4. Estimating Structural Models
7.5. Parametric Models of Sovereign Spreads
8. Credit Swaps
8.1. Other Credit Derivatives
8.2. The Basic Credit Swap
8.3. Simple Credit-Swap Spreads
8.4. Model-Based CDS Rates
8.5. The Role of Asset Swaps
9. Optional Credit Pricing
9.1. Spread Options
9.2. Callable and Convertible Corporate Debt
9.3. A Simple Convertible Bond Pricing Model
10. Correlated Defaults
10.1. Alternative Approaches to Correlation
10.2. CreditMetrics Correlated Defaults
10.3. Correlated Default Intensities
10.4. Copula-Based Correlation Modeling
10.5. Empirical Methods
10.6. Default-Time Simulation Algorithms
10.7. Joint Default Events
11. Collateralized Debt Obligations
11.1. Introduction
11.2. Some Economics of CDOs
11.3. Default-Risk Model
11.4. Pricing Examples
11.5. Default Loss Analytics
11.6. Computation of Diversity Scores
12. Over-the-Counter Default Risk and Valuation
12.1. Exposure
12.2. OTC Credit Risk Value Adjustments
12.3. Additional Swap Credit Adjustments
12.4. Credit Spreads on Currency Swaps
13. Integrated Market and Credit Risk Measurement
13.1. Market Risk Factors
13.2. Delta-Gamma for Derivatives with Jumps
13.3. Integration of Market and Credit Risk
13.4. Examples of VaR with Credit Risk
Appendix A: Introduction to Affine Processes
Appendix B: Econometrics of Affine Term-Structure Models
Appendix C: HJM Spread Curve Models
References
Index
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About Darrell Duffie and Kenneth J. Singleton |
Darrell Duffie is the James Irvin Miller Professor of Finance at the Graduate School of Business, Stanford University. His books include "Dynamic Asset Pricing Theory" (Princeton) and "Futures Markets" (Prentice-Hall). Kenneth J. Singleton is the C.O.G. Miller Distinguished Professor of Finance at the Graduate School of Business, Stanford University. He is the author of numerous articles in professional journals and an editor of the "Review of Financial Studies".
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