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Credit Securitisations and Derivatives: Challenges for the Global Markets

Book Description

A comprehensive resource providing extensive coverage of the state of the art in credit secruritisations, derivatives, and risk management

Credit Securitisations and Derivatives is a one-stop resource presenting the very latest thinking and developments in the field of credit risk. Written by leading thinkers from academia, the industry, and the regulatory environment, the book tackles areas such as business cycles; correlation modelling and interactions between financial markets, institutions, and instruments in relation to securitisations and credit derivatives; credit portfolio risk; credit portfolio risk tranching; credit ratings for securitisations; counterparty credit risk and clearing of derivatives contracts and liquidity risk. As well as a thorough analysis of the existing models used in the industry, the book will also draw on real life cases to illustrate model performance under different parameters and the impact that using the wrong risk measures can have.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright Page
  5. Foreword
  6. Part I: Introduction
    1. Chapter 1: Credit Securitizations and Derivatives
      1. 1.1 ECONOMIC CYCLES AND CREDIT PORTFOLIO RISK
      2. 1.2 CREDIT PORTFOLIO RISK MEASUREMENT
      3. 1.3 CREDIT PORTFOLIO RISK TRANCHING
      4. 1.4 CREDIT RATINGS
      5. 1.5 ACTUARIAL VS. MARKET CREDIT RISK PRICING
      6. 1.6 REGULATION
      7. 1.7 THANK YOU
      8. REFERENCES
    2. Chapter 2: Developments in Structured Finance Markets
      1. 2.1 IMPAIRMENTS OF ASSET-BACKED SECURITIES AND OUTSTANDING RATINGS
      2. 2.2 ISSUANCE OF ASSET-BACKED SECURITIES AND OUTSTANDING VOLUME
      3. 2.3 GLOBAL CDO ISSUANCE AND OUTSTANDING VOLUME
      4. CONCLUDING REMARKS
      5. NOTES
      6. REFERENCES
  7. Part II: Credit Portfolio Risk Measurement
    1. Chapter 3: Mortgage Credit Risk
      1. 3.1 INTRODUCTION
      2. 3.2 FIVE “C”S OF CREDIT AND MORTGAGE CREDIT RISK
      3. 3.3 DETERMINANTS OF MORTGAGE DEFAULT, LOSS GIVEN DEFAULT AND EXPOSURE AT DEFAULT
      4. 3.4 MODELING METHODS FOR DEFAULT, LGD AND EAD
      5. 3.5 MODEL RISK MANAGEMENT
      6. 3.6 CONCLUSIONS
      7. REFERENCES
    2. Chapter 4: Credit Portfolio Correlations and Uncertainty
      1. 4.1 INTRODUCTION
      2. 4.2 GAUSSIAN AND SEMI-GAUSSIAN SINGLE RISK FACTOR MODEL
      3. 4.3 INDIVIDUAL AND SIMULTANEOUS CONFIDENCE BOUNDS AND INTERVALS
      4. 4.4 CONFIDENCE INTERVALS FOR ASSET CORRELATIONS
      5. 4.5 CONFIDENCE INTERVALS FOR DEFAULT AND SURVIVAL TIME CORRELATIONS
      6. 4.6 EXAMPLE
      7. 4.7 CONCLUSION
      8. APPENDIX
      9. NOTES
      10. REFERENCES
    3. Chapter 5: Credit Portfolio Correlations with Dynamic Leverage Ratios
      1. 5.1 INTRODUCTION
      2. 5.2 THE HUI ET AL. (2007) MODEL
      3. 5.3 MODELLING DEFAULT CORRELATIONS IN A TWO-FIRM MODEL
      4. 5.4 NUMERICAL RESULTS
      5. 5.5 CONCLUSION
      6. NOTES
      7. REFERENCES
    4. Chapter 6: A Hierarchical Model of Tail-Dependent Asset Returns
      1. 6.1 INTRODUCTION
      2. 6.2 THE VARIANCE COMPOUND GAMMA MODEL
      3. 6.3 AN APPLICATION EXAMPLE
      4. 6.4 IMPORTANCE SAMPLING ALGORITHM
      5. 6.5 CONCLUSIONS
      6. APPENDIX A: THE VCG PROBABILITY DISTRIBUTION FUNCTION
      7. APPENDIX B: HAC REPRESENTATION FOR THE VCG FRAMEWORK
      8. NOTES
      9. REFERENCES
    5. Chapter 7: Monte Carlo Methods for Portfolio Credit Risk
      1. 7.1 INTRODUCTION
      2. 7.2 MODELING CREDIT PORTFOLIO LOSSES
      3. 7.3 ESTIMATING RISK MEASURES VIA MONTE CARLO
      4. 7.4 SPECIFIC MODELS
      5. APPENDIX A: A PRIMER ON RARE-EVENT SIMULATION
      6. REFERENCES
    6. Chapter 8: Credit Portfolio Risk and Diversification
      1. 8.1 INTRODUCTION
      2. 8.2 MODEL SETUP
      3. 8.3 INDEPENDENT ASSET VALUES
      4. 8.4 CORRELATED ASSET VALUES
      5. 8.5 LARGE PORTFOLIO LIMIT
      6. 8.6 APPLICATIONS OF THE STRUCTURAL RECOVERY RATE
      7. 8.7 CONCLUSIONS
      8. REFERENCES
  8. Part III: Credit Portfolio Risk Securitization and Tranching
    1. Chapter 9: Differences in Tranching Methods: Some Results and Implications
      1. 9.1 INTRODUCTION
      2. 9.2 DEFINING A TRANCHE
      3. 9.3 THE MATHEMATICS OF TRANCHING
      4. 9.4 THE EL OF A TRANCHE NECESSARILY INCREASES WHEN EITHER THE ATTACHMENT POINT OR THE DETACHMENT POINT IS DECREASED
      5. 9.5 UPPER BOUND ON TRANCHE EXPECTED LGD (LGDt) ASSUMPTION GIVEN EL-BASED TRANCHES
      6. 9.6 “SKIPPING” OF SOME TRANCHES IN THE EL-BASED APPROACH
      7. 9.7 CONCLUSION
      8. NOTES
      9. REFERENCES
    2. Chapter 10: Global Structured Finance Rating
      1. 10.1 INTRODUCTION
      2. 10.2 ASSET-BACKED SECURITIES
      3. 10.3 GLOBAL SENSITIVITY ANALYSIS
      4. 10.4 GLOBAL SENSITIVITY ANALYSIS RESULTS
      5. 10.5 GLOBAL RATING
      6. 10.6 CONCLUSION
      7. ACKNOWLEDGMENT
      8. NOTES
      9. REFERENCES
  9. Part IV: Credit Derivatives
    1. Chapter 11: Analytic Dynamic Factor Copula Model
      1. 11.1 INTRODUCTION
      2. 11.2 PRICING EQUATIONS
      3. 11.3 ONE-FACTOR COPULA MODEL
      4. 11.4 MULTI-PERIOD FACTOR COPULA MODELS
      5. 11.5 CALIBRATION
      6. 11.6 NUMERICAL EXAMPLES
      7. 11.7 CONCLUSIONS
      8. NOTES
      9. REFERENCES
    2. Chapter 12: Dynamic Modeling of Credit Derivatives
      1. 12.1 INTRODUCTION
      2. 12.2 PORTFOLIO CREDIT DERIVATIVES
      3. 12.3 MODELING ASSET DYNAMICS
      4. 12.4 EMPIRICAL ANALYSIS
      5. 12.5 CONCLUSION
      6. NOTES
      7. REFERENCES
    3. Chapter 13: Pricing and Calibration in Market Models
      1. 13.1 INTRODUCTION
      2. 13.2 BASIC NOTIONS
      3. 13.3 THE MODEL
      4. 13.4 AN AFFINE SPECIFICATION
      5. 13.5 PRICING
      6. 13.6 CALIBRATION
      7. APPENDIX A: COMPUTATIONS
      8. REFERENCES
    4. Chapter 14: Counterparty Credit Risk and Clearing of Derivatives – From the Perspective of an Industrial Corporate with a Focus on Commodity Markets
      1. 14.1 INTRODUCTION
      2. 14.2 CREDIT EXPOSURES IN COMMODITY BUSINESS
      3. 14.3 EX ANTE EXPOSURE-REDUCING TECHNIQUES
      4. 14.4 EX ANTE RISK-REDUCING TECHNIQUES
      5. 14.5 EX POST RISK-REDUCING TECHNIQUES
      6. 14.6 EX POST WORK OUT CONSIDERATIONS
      7. 14.7 PRACTICAL CREDIT RISK MANAGEMENT AND PRICING
      8. 14.8 PECULIARITIES OF COMMODITY MARKETS
      9. 14.9 PECULIARITIES OF COMMODITY RELATED CREDIT PORTFOLIOS
      10. 14.10 CREDIT RISK CAPITAL FOR A COMMODITY RELATED PORTFOLIO – MEASURED WITH AN EXTENSION OF CREDITMETRICS
      11. 14.11 CASE STUDY: CREDITRISK+ APPLIED TO A COMMODITY RELATED CREDIT PORTFOLIO
      12. 14.12 OUTLOOK
      13. NOTES
      14. REFERENCES
    5. Chapter 15: CDS Industrial Sector Indices, Credit and Liquidity Risk
      1. 15.1 INTRODUCTION
      2. 15.2 THE DATA
      3. 15.3 METHODOLOGY AND RESULTS
      4. 15.4 STABILITY OF RELATIONS
      5. 15.5 CONCLUSIONS
      6. REFERENCES
    6. Chapter 16: Risk Transfer and Pricing of Illiquid Assets with Loan CDS
      1. 16.1 INTRODUCTION
      2. 16.2 SHIPPING MARKET
      3. 16.3 LOAN CREDIT DEFAULT SWAPS
      4. 16.4 VALUATION FRAMEWORK FOR LCDS
      5. 16.5 NUMERICAL RESULTS
      6. 16.6 CONCLUSION
      7. APPENDIX A: MONTE CARLO PARAMETERIZATION
      8. REFERENCES
  10. Part V: Regulation
    1. Chapter 17: Regulatory Capital Requirements for Securitizations
      1. 17.1 REGULATORY APPROACHES FOR SECURITIZATIONS
      2. 17.2 POST-CRISIS REVISIONS TO THE BASEL FRAMEWORK
      3. 17.3 OUTLOOK
      4. NOTES
      5. REFERENCES
    2. Chapter 18: Regulating OTC Derivatives
      1. 18.1 OVERVIEW
      2. 18.2 THE WALL STREET TRANSPARENCY AND ACCOUNTABILITY PART OF THE DODD–FRANK ACT OF 2010
      3. 18.3 EVALUATION OF PROPOSED REFORMS
      4. 18.4 CLEARING, MARGINS, TRANSPARENCY AND SYSTEMIC RISK OF CLEARINGHOUSES
      5. 18.5 CONCLUSION: HOW WILL THE DERIVATIVES REFORMS AFFECT GLOBAL FINANCE IN FUTURE?
      6. APPENDIX A: ITEMS CONCERNING OTC DERIVATIVES LEFT BY THE DODD–FRANK ACT FOR FUTURE STUDY
      7. APPENDIX B: CURRENT OTC DISCLOSURE PROVIDED BY DEALER BANKS
      8. APPENDIX C: SOVEREIGN CREDIT DEFAULT SWAPS MARKETS
      9. NOTES
      10. REFERENCES
    3. Chapter 19: Governing Derivatives after the Financial Crisis: The Devil is in the Details
      1. 19.1 INTRODUCTION
      2. 19.2 SECURITIZATION AND RISK MANAGEMENT
      3. 19.3 THE REGULATION OF DERIVATIVE CONTRACTS
      4. 19.4 REGULATORY CHALLENGES AND RESPONSES
      5. 19.5 CONCLUSIONS
      6. NOTES
      7. REFERENCES
  11. About the Authors
  12. Index