The Standard & Poor’s Guide to Measuring and Managing Credit by Arnaud de Servigny

By Arnaud de Servigny

Today's such a lot entire, up to date reference for controlling credits possibility publicity of every kind, in each environment

Measuring and dealing with credits threat takes you a ways past the Basel guidance to element a strong, confirmed application for figuring out and controlling your firm’s credits possibility. offering hands-on solutions on sensible issues from capital administration to correlations, and assisting its theories with up to the moment info and insights, this authoritative booklet examines each key point of credits threat, including:

  • Determinants of credits threat and pricing/spread implications
  • Quantitative versions for relocating past Altman’s Z rating to split “good” debtors from “bad”
  • Key determinants of loss given default, and capability hyperlinks among restoration premiums and chances of default
  • Measures of dependency together with linear correlation, and the impression of correlation on portfolio losses
  • A specific evaluate of 5 of today’s hottest portfolio models―CreditMetrics, CreditPortfolioView, Portfolio hazard Tracker, CreditRisk+, and Portfolio supervisor
  • How credits chance is mirrored within the costs and yields of person securities
  • How derivatives and securitization tools can be utilized to move and repackage credits possibility

Today’s credits probability size and administration instruments and methods supply firms with dramatically more desirable energy and adaptability, not just in mitigating possibility but additionally in bettering total monetary functionality. Measuring and coping with credits danger introduces and explores each one of those instruments, in addition to the swiftly evolving international credits setting, to supply bankers and different monetary decision-makers with the knowledge to prevent over the top credits hazard the place possible―and mitigate it whilst necessary.

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The Standard & Poor’s Guide to Measuring and Managing Credit Risk

Modern such a lot entire, up to date reference for controlling credits chance publicity of all kinds, in each setting Measuring and dealing with credits possibility takes you a long way past the Basel directions to element a strong, confirmed application for realizing and controlling your firm’s credits probability. delivering hands-on solutions on sensible issues from capital administration to correlations, and aiding its theories with up to the moment info and insights, this authoritative ebook examines each key element of credits danger, together with: Determinants of credits probability and pricing/spread implications Quantitative versions for relocating past Altman’s Z rating to split “good” debtors from “bad” Key determinants of loss given default, and capability hyperlinks among restoration premiums and chances of default Measures of dependency together with linear correlation, and the effect of correlation on portfolio losses an in depth assessment of 5 of today’s most well liked portfolio models―CreditMetrics, CreditPortfolioView, Portfolio hazard Tracker, CreditRisk+, and Portfolio supervisor How credits danger is mirrored within the costs and yields of person securities How derivatives and securitization tools can be utilized to move and repackage credits threat Today’s credits danger size and administration instruments and strategies supply businesses with dramatically better energy and suppleness, not just in mitigating danger but additionally in enhancing total monetary functionality.

Extra resources for The Standard & Poor’s Guide to Measuring and Managing Credit Risk

Sample text

Many articles, (Dichev and Piotroski, 2001; Holthausen and Leftwich, 1986; and Pinches and Singleton, 1978) indeed report falls in the value of equity. ). A segmentation of the bond market, particularly between investmentgrade and non-investment-grade categories, can also lead to a downgrade being associated with a drop in the overall asset value. A persistent finding in almost all papers is that downgrades affect stock prices significantly but upgrades do not. Authors disagree on the explanation for this fact.

For a given expected return, the debtor will prefer the riskier project. This corresponds to moral hazard. The manager of a risky project will therefore agree to pay a higher interest rate than the manager of a safe project, given the higher level of CH01_deServigny_1417559 3/17/04 11:11 PM Page 21 Credit, Financial Markets, and Microeconomics 21 the upside. Limited liability ensures that the downside is bounded. This mechanism, whereby a bank has incentive to select bad risks (“lemons” as Akerlof, 1970, puts it) and to reject good ones, is called adverse selection.

Bank Lending Efficiency A bank lends money to a company, having spent time and money on monitoring. To some extent, through this initial investment, the bank has significantly reduced competition. At the same time, it takes a long time for the customer to obtain the positive reputation of “a good debtor” when the maturity of the loan is long enough. In the meantime the bank will be in a position to have the customer overpay on any new loans until his reputation as a reliable borrower is clearly established.

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