You are previewing The Credit Market Handbook: Advanced Modeling Issues.
O'Reilly logo
The Credit Market Handbook: Advanced Modeling Issues

Book Description

In The Credit Market Handbook, financial expert and Editor H. Gifford Fong has assembled a group of prominent professionals and academics familiar with the credit arena. In each chapter, a different expert analyzes a different issue related to today's dynamic credit market, including portfolio credit risk, valuation models, and the importance of modeling credit default.

In bringing together these noted authors and their work, Fong provides you with a rich framework of research in the area of credit analysis. Some of the topics discussed within this comprehensive guide include:

  • Estimating default probabilities implicit in equity prices

  • Structural versus reduced form models: a new information-based perspective

  • Valuing high-yield bonds

  • Predictions of default probabilities in structural models of debt

  • And much more

Filled with in-depth insight and expert advice, this invaluable resource offers you the critical information you need to succeed within today's credit market.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Contents
  5. Introduction
  6. Executive Chapter Summaries
  7. CHAPTER 1: Estimating Default Probabilities Implicit in Equity Prices
    1. 1. INTRODUCTION
    2. 2. THE MODEL STRUCTURE
    3. 3. DESCRIPTION OF THE DATA
    4. 4. ESTIMATION OF THE STATE VARIABLE PROCESS PARAMETERS
    5. 5. EQUITY RETURN ESTIMATION
    6. 6. ANALYSIS OF THE TIME SERIES PROPERTIES OF THE PARAMETERS
    7. 7. ANALYSIS OF FAMA–FRENCH FOUR-FACTOR MODEL WITH NO DEFAULT
    8. 8. ANALYSIS OF A BUBBLE COMPONENT (P/E RATIO) IN STOCK PRICES
    9. 9. ANALYSIS OF THE DEFAULT INTENSITY
    10. 10. RELATIVE PERFORMANCE OF THE EQUITY RETURN MODELS
    11. 11. COMPARISON OF DEFAULT INTENSITIES BASED ON DEBT VERSUS EQUITY
    12. 12. CONCLUSIONS
    13. NOTES
    14. REFERENCES
    15. APPENDIX
  8. CHAPTER 2: Predictions of Default Probabilities in Structural Models of Debt
    1. 1. INTRODUCTION
    2. 2. RECENT EMPIRICAL STUDIES
    3. 3. STRUCTURAL MODELS AND DEFAULT RISK
    4. 4. THE DEFAULT BOUNDARY IN EXOGENOUS AND ENDOGENOUS CASES
    5. 5. THE DEFAULT PROBABILITY WITH CONSTANT DEFAULT BARRIER
    6. 6. CALIBRATION OF MODELS: THE BASE CASE
    7. 7. MATCHING EMPIRICAL DEFAULT FREQUENCIES WITH THE L-T MODEL
    8. 8. MATCHING EMPIRICAL DPS WITH THE L-S MODEL
    9. 9. THE MOODY'S–KMV APPROACH
    10. 10. SOME PRELIMINARY THOUGHTS ON THE RELATIONSHIP BETWEEN THE KMV APPROACH AND L-S/L-T
    11. 11. CONCLUSIONS
    12. ACKNOWLEDGMENTS
    13. POSTSCRIPT
    14. APPENDIX
    15. NOTES
    16. REFERENCES
  9. CHAPTER 3: Survey of the Recent Literature: Recovery Risk
    1. 1. INTRODUCTION
    2. 2. EMPIRICAL ATTRIBUTES
    3. 3. RECOVERY CONVENTIONS
    4. 4. RECOVERY IN STRUCTURAL MODELS
    5. 5. RECOVERY IN REDUCED-FORM MODELS
    6. 6. MEASURE TRANSFORMATIONS
    7. 7. SUMMARY AND SPECULATION
    8. REFERENCES
  10. CHAPTER 4: Non-Parametric Analysis of Rating Transition and Default Data
    1. 1. INTRODUCTION
    2. 2. DATA AND OUTLINE OF METHODOLOGY
    3. 3. ESTIMATING TRANSITION INTENSITIES IN TWO DIMENSIONS
    4. 4. ONE-DIMENSIONAL HAZARDS AND MARGINAL INTEGRATION
    5. 5. CONFIDENCE INTERVALS
    6. 6. TRANSITIONS: DEPENDENCE ON PREVIOUS MOVE AND DURATION
    7. 7. MULTIPLICATIVE INTENSITIES
    8. 8. CONCLUDING REMARKS
    9. ACKNOWLEDGMENTS
    10. NOTES
    11. REFERENCES
  11. CHAPTER 5: Valuing High-Yield Bonds: A Business Modeling Approach
    1. 1. INTRODUCTION
    2. 2. SPECIFICATION OF THE MODEL
    3. 3. A NUMERICAL ILLUSTRATION
    4. 4. EMPIRICAL EVIDENCE
    5. 5. IMPLICATIONS OF THE MODEL
    6. 6. CONCLUSIONS
    7. ACKNOWLEDGMENTS
    8. APPENDIX
    9. NOTES
    10. REFERENCES
  12. CHAPTER 6: Structural versus Reduced-Form Models: A New Information-Based Perspective
    1. 1. INTRODUCTION
    2. 2. THE SETUP
    3. 3. STRUCTURAL MODELS
    4. 4. REDUCED-FORM MODELS
    5. 5. A MATHEMATICAL OVERVIEW
    6. 6. OBSERVABLE INFORMATION SETS
    7. 7. CONCLUSION
    8. ACKNOWLEDGMENT
    9. NOTES
    10. REFERENCES
  13. CHAPTER 7: Reduced-Form versus Structural Models of Credit Risk: A Case Study of Three Models
    1. 1. INTRODUCTION
    2. 2. MERTON, VASICEK–KEALHOFER, AND HULL–WHITE MODELS
    3. 3. DATA AND EMPIRICAL METHODOLOGY
    4. 4. RESULTS
    5. 5. CONCLUSION
    6. ACKNOWLEDGMENTS
    7. NOTES
    8. REFERENCES
  14. CHAPTER 8: Implications of Correlated Default for Portfolio Allocation to Corporate Bonds
    1. 1. INTRODUCTION
    2. 2. A MODEL FOR DEFAULT
    3. 3. THE PORTFOLIO PROBLEM
    4. 4. SAMPLE PORTFOLIOS WITH ZERO RECOVERY FRACTIONS
    5. 5. SAMPLE PORTFOLIOS WITH NONZERO RECOVERY FRACTIONS
    6. 6. CONCLUDING REMARKS
    7. ACKNOWLEDGMENTS
    8. NOTES
    9. REFERENCES
  15. CHAPTER 9: Correlated Default Processes: A Criterion-Based Copula Approach
    1. 1. INTRODUCTION
    2. 2. DESCRIPTION OF THE DATA
    3. 3. COPULAS AND FEATURES OF THE DATA
    4. 4. DETERMINING THE JOINT DEFAULT PROCESS
    5. 5. SIMULATING CORRELATED DEFAULTS AND MODEL COMPARISONS
    6. 6. DISCUSSION
    7. ACKNOWLEDGMENTS
    8. APPENDIX: THE SKEWED DOUBLE EXPONENTIAL DISTRIBUTION
    9. NOTES
    10. REFERENCES
  16. Index