By Jeffrey R. Bohn
Cutting-edge options and instruments had to facilitate powerful credits portfolio administration and powerful quantitative credits research
jam-packed with in-depth insights and specialist recommendation, lively credits Portfolio administration in perform serves as a complete advent to either the speculation and real-world perform of credits portfolio administration. The authors have written a textual content that's technical sufficient either by way of heritage and implementation to hide what practitioners and researchers want for truly using these kinds of threat administration instruments in huge firms yet which even as, avoids technical proofs in prefer of actual applications. all through this ebook, readers might be brought to the theoretical foundations of this self-discipline, and know about structural, reduced-form, and econometric types effectively utilized in the marketplace this present day. The ebook is stuffed with hands-on examples and anecdotes. idea is illustrated with functional software. The authors' web site presents extra software program instruments within the type of Excel spreadsheets, Matlab code and S-Plus code. each one component to the e-book concludes with evaluate questions designed to spark additional dialogue and mirrored image at the techniques offered.
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Extra info for Active Credit Portfolio Management in Practice
As previously noted, in credit risk modeling, we attribute much of the change in value of credit-risky securities to changes in the likelihood that the obligor will pay its coupons and repay principal. Some models, such as structural models, rely on specific economic reasoning to describe why an obligor defaults—namely that the market value of the borrower’s assets falls to a point at which it no longer covers the total amount of its The Framework: Definitions and Concepts 13 obligations. Other more statistically focused models such as reduced-form models do not rely on a specific causal economic relationship, but rather focus on default as an unpredictable event that can be captured in a coherent mathematical model that is consistent with financial theory.
Most analyses begin with the assumption that H is one year. Note that we often denote time with the letter T. In this book, we distinguish time to maturity as T from time horizon of analysis, which is H. Default correlation: The co-movement into default of two obligors. Value correlation: The co-movement in the value of the credit-risky securities within a portfolio. With these definitions, we can sketch out the framework for evaluating a credit portfolio. Initially, we will determine expected loss, which is a primary cost of building a credit portfolio.
In recent years, some of the most sophisticated banks have used portfolio analysis technology to devise transfer pricing mechanisms allowing them to separate the management of the bank’s credit portfolio from the creation of valuable service businesses. ) Clearly, today the motivation for trading credit goes beyond avoiding a default and ranges from perceived market inefficiencies to portfolio rebalancing designed to improve the return/risk profile of an institution’s entire credit portfolio. Another important trend has been the change in the regulatory environment as financial regulators come to grips with the importance of 10 ACTIVE CREDIT PORTFOLIO MANAGEMENT IN PRACTICE measuring and managing credit risk.
Active Credit Portfolio Management in Practice by Jeffrey R. Bohn