文档介绍：INTERNATIONAL FIXED E RESEARCH
Analytical Research Series
MODELLING CREDIT:
THEORY AND PRACTICE
Dominic O’Kane and Lutz Schlögl
February 2001
Lehman Brothers International (Europe) Pub Code 403
Analytical Research Series February 2001
Summary In recent years, there has been considerable interest in the application of credit
models to the analysis and valuation of credit risk. In this article we present and
analyse the most popular credit models, studying both the single issuer and the
portfolio case. In doing so we provide practical examples of when and how these
models should be used.
Dominic O’Kane
dokane@
+44-20 7260 2628
Lutz Schlögl
luschloe@
+44-20 7601 0011 ext. 5016
Acknowledgements We would like to thank Jamil Baz, Robert Campbell, Lee Phillips and Paul Varotsis for their
comments and suggestions
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Analytical Research Series February 2001
TABLE OF CONTENTS
Introduction to Credit Modelling 5
Single Issuer Credit Models 6
Structural Models of Default 6
The Merton Model 6
Extensions of the Merton Model 9
Empirical Testing of the Merton Model 10
Practical Applications of Firm Value Models 11
Reduced-Form Models 13
Modelling the Default Process 13
Risk-Neutral Pricing 14
Stochastic Hazard Rates 16
Simulating Default 17
Rating-Based Models 19
Recovery Assumptions 22
Credit Curve Construction 26
Portfolio Credit Models 31
Default Correlation 31
Default Correlation and Basket Default Swaps 32
Modelling and Valuing Collateralized Debt Obligations 35
The Firm Value Approach to Modelling Correlated Default 36
Large Portfolio Limit 37
Conclusions 42
Appendix 43
References 44
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Analytical Research Series February 2001
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Analytical Research Series February 2001
Introduction to Credit Modelling
In recent years, bination of low government bond yields, low issuance