文档介绍：Chapter 13 Credit Risk
What is credit risk?
Credit risk arises from the possibility that borrowers and counterparties in derivatives transactions may default.
2
2
2
Contents
Approaches to estimating the probability that pany will default
The difference between risk-neutral and real-world probabilities of default
Credit risk of derivative
Default correlation, Gaussian copula models
3
3
3
Approaches to estimating default probabilities
Historical default probabilities of panies
From bonds prices
From equity prices
From derivatives prices
Historical cumulative average default rates (%)
Define V(t) as cumulative probability of pany surviving to time t.
Taking limits, we get
Define Q(t) as the probability of default by time t.
Where is the average default intensity between 0 and t
Recovery rate
The recovery rate for a bond is usually defined as the price of the bond immediately after default as a percent of its face value
Recovery rates are significantly negatively correlated with default rates
Recovery rates (Moody’s:1982 to 2006, Table , page 491)