Credit Risk Measurement In and Out of the Financial Crisis New Approaches to Value at Risk and Other Paradigms 3rd Edition by Anthony Saunders, Linda Allen 0470478349 9780470478349

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ISBN 10: 0470478349

ISBN 13: 9780470478349

Author: Anthony Saunders, Linda Allen

A classic book on credit risk management is updated to reflect the current economic crisis

Credit Risk Management In and Out of the Financial Crisis dissects the 2007-2008 credit crisis and provides solutions for professionals looking to better manage risk through modeling and new technology. This book is a complete update to Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms, reflecting events stemming from the recent credit crisis.

Authors Anthony Saunders and Linda Allen address everything from the implications of new regulations to how the new rules will change everyday activity in the finance industry. They also provide techniques for modeling-credit scoring, structural, and reduced form models-while offering sound advice for stress testing credit risk models and when to accept or reject loans.

• Breaks down the latest credit risk measurement and modeling techniques and simplifies many of the technical and analytical details surrounding them
• Concentrates on the underlying economics to objectively evaluate new models
• Includes new chapters on how to prevent another crisis from occurring

Understanding credit risk measurement is now more important than ever. Credit Risk Management In and Out of the Financial Crisis will solidify your knowledge of this dynamic discipline.

Credit Risk Measurement In and Out of the Financial Crisis New Approaches to Value at Risk and Other Paradigms 3rd Table of contents:

Part One: Bubbles and Crises: The Global Financial Crisis of 2007–2009

Chapter 1: Setting the Stage for Financial Meltdown

INTRODUCTION

THE CHANGING NATURE OF BANKING

REENGINEERING FINANCIAL INSTITUTIONS AND MARKETS

SUMMARY

APPENDIX 1.1: RATINGS COMPARISONS FOR THE THREE MAJOR RATING AGENCIES

Chapter 2: The Three Phases of the Credit Crisis

INTRODUCTION

BURSTING OF THE CREDIT BUBBLE

PHASE 1: CREDIT CRISIS IN THE MORTGAGE MARKET

PHASE 2: THE CRISIS SPREADS—LIQUIDITY RISK

PHASE 3: THE LEHMAN FAILURE—UNDERWRITING AND POLITICAL INTERVENTION RISK

SUMMARY

Chapter 3: The Crisis and Regulatory Failure

INTRODUCTION

CRISIS INTERVENTION

LOOKING FORWARD: RESTRUCTURING PLANS

SUMMARY

Part Two: Probability of Default Estimation

Chapter 4: Loans as Options: The Moody’s KMV Model

INTRODUCTION

THE LINK BETWEEN LOANS AND OPTIONS

THE MOODY’S KMV MODEL

TESTING THE ACCURACY OF EDF SCORES

CRITIQUES OF MOODY’S KMV EDF SCORES

SUMMARY

APPENDIX 4.1: MERTON’S VALUATION MODEL

APPENDIX 4.2 : MOODY’S KMV RISKCALC

Chapter 5: Reduced Form Models: Kamakura’s Risk Manager

INTRODUCTION

DERIVING RISK-NEUTRAL PROBABILITIES OF DEFAULT

GENERALIZING THE DISCRETE MODEL OF RISKY DEBT PRICING

THE LOSS INTENSITY PROCESS

KAMAKURA’S RISK INFORMATION SERVICES (KRIS)

DETERMINANTS OF BOND SPREADS

SUMMARY

APPENDIX 5.1: UNDERSTANDING A BASIC INTENSITY PROCESS

Chapter 6: Other Credit Risk Models

INTRODUCTION

CREDIT SCORING SYSTEMS

MORTALITY RATE SYSTEMS

ARTIFICIAL NEURAL NETWORKS

COMPARISON OF DEFAULT PROBABILITY ESTIMATION MODELS

SUMMARY

Part Three: Estimation of Other Model Parameters

Chapter 7: A Critical Parameter: Loss Given Default

INTRODUCTION

ACADEMIC MODELS OF LGD

DISENTANGLING LGD AND PD

MOODY’S KMV’S APPROACH TO LGD ESTIMATION

KAMAKURA’S APPROACH TO LGD ESTIMATION

SUMMARY

Chapter 8: The Credit Risk of Portfolios and Correlations

INTRODUCTION

MODERN PORTFOLIO THEORY (MPT): AN OVERVIEW

APPLYING MPT TO NONTRADED BONDS AND LOANS

ESTIMATING CORRELATIONS ACROSS NONTRADED ASSETS

MOODY’S KMV’S PORTFOLIO MANAGER

KAMAKURA AND OTHER REDUCED FORM MODELS

SUMMARY

Part Four: Putting the Parameters Together

Chapter 9: The VAR Approach: CreditMetrics and Other Models

INTRODUCTION

THE CONCEPT OF VALUE AT RISK

CAPITAL REQUIREMENTS

TECHNICAL ISSUES AND PROBLEMS

THE PORTFOLIO APPROACH I N CREDITMETRICS

SUMMARY

APPENDIX 9 .1: CALCULATING THE FORWARD ZERO CURVE FOR LOAN VALUATION

APPENDIX 9.2: ESTIMATING UNEXPECTED LOSSES USING EXTREME VALUE THEORY

APPENDIX 9.3: THE SIMPLIFIED TWO-ASSET SUBPORTFOLIO SOLUTION TO THE N-ASSET PORTFOLIO CASE

APPENDIX 9.4: CREDITMETRICS AND SWAP CREDIT RISK

Chapter 10: Stress Testing Credit Risk Models: Algorithmics Mark-to-Future

INTRODUCTION

BACK-TESTING CREDIT RISK MODELS

USING THE ALGORITHMICS MARK-TO-FUTURE MODEL

STRESS TESTING U.S. BANKS IN 2009

SUMMARY

Chapter 11: RAROC Models

INTRODUCTION

WHAT IS RAROC?

RAROC, ROA, AND RORAC

ALTERNATIVE FORMS OF RAROC

THE RAROC DENOMINATOR AND CORRELATIONS

RAROC AND EVA

SUMMARY

Part Five: Credit Risk Transfer Mechanisms

Chapter 12: Credit Derivatives

INTRODUCTION

CREDIT DEFAULT SWAPS

CREDIT SECURITIZATIONS

FINANCIAL FIRMS’ USE OF CREDIT DERIVATIVES

CDS SPREADS AND RATING AGENCY RATING SYSTEMS

SUMMARY

APPENDIX 12.1: PRICING THE CDS SPREAD WITH COUNTERPARTY CREDIT RISK EXPOSURE

Chapter 13: Capital Regulation

INTRODUCTION

THE 2006 BASEL II PLAN

SUMMARY

APPENDIX 13.1 LOAN RATING SYSTEMS

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