Default risk

The score for credit

Jorge Sobehart and Sean Keenan discuss the benefits and limitations of model performance measures for default and credit spread prediction, and highlight several common pitfalls in the model comparison found in the literature and vendor documentation. To…

Correlation evidence

Like ratings, default correlation is an area of fierce industry debate. But any fundamental, long-terminvestor searching for fair value in credit correlation will want to understand what the historical dataactually says.

Correlation evidence

Like ratings, default correlation is an area of fierce industry debate. But any fundamental, long-term investor searching for fair value in credit correlation will want to understand what the historical data actually says. Here, Arnaud de Servigny and…

The road to partition

Applying the ensemble approach developed in these pages last month, Kevin Thompson and Roland Ordovas calculate risk contributions and show how to measure higher-order default dependence using the method of partitions. The results provide tools allowing…

Credit ensemble

Kevin Thompson and Roland Ordovas address the question of how individual counterparties contribute to the total credit risk of a portfolio. They provide an analytic method, new to credit modelling, to estimate all joint default statistics conditional…

Sponsor's article > No cure through the cycle

Some have argued that the antidote for pro-cyclicality in the Basel II capital requirements is the use of 'through-the-cycle' estimates of default and recovery rates. David Rowe argues that, whilethis might mitigate the pro-cyclical impact of the Accord,…

Credit and credibility

Credit risk modellers have made giant strides, but they still have to convince regulators that they can make the world a safer place.

Loan portfolio value

Using a conditional independence framework, Oldrich Vasicek derives a useful limiting form for the portfolio loss distribution with a single systematic factor. He then derives a risk-neutral distribution suitable for traded portfolios, and shows how…

Loan portfolio value

Using a conditional independence framework, Oldrich Vasicek derives a useful limiting form for the portfolio loss distribution with a single systematic factor. He then derives a risk-neutral distribution suitable for traded portfolios, and shows how…

Pricing default baskets

Nicholas Dunbar, Risk’s technical editor, introduces the first in a new series of technical papers written by quants at Deutsche Bank.“Default correlation has been one of the hottest topics in credit derivatives over the past year. So it is a pleasure to…

Banking on progress

A dizzying array of credit risk technology firms have set up shop in Asia in order to reap the rewards of the new Basel recommendations. But are Asia’s regional banks ready to implement these systems?

Probing granularity

The granularity adjustment, which adjusts risk weightings for credit portfolio diversification, is one of Basel II’s key modelling assumptions. Here, Tom Wilde uncovers a weakness in this assumption arising from the differences in the underlying credit…

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