Bluhm / Overbeck Structured Credit Portfolio Analysis, Baskets and CDOs

Erscheinungsjahr 2006
ISBN: 978-1-4200-1147-0
Verlag: Taylor & Francis
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 376 Seiten

Reihe: Chapman & Hall/CRC Financial Mathematics Series

The financial industry is swamped by credit products whose economic performance is linked to the performance of some underlying portfolio of credit-risky instruments, like loans, bonds, swaps, or asset-backed securities. Financial institutions continuously use these products for tailor-made long and short positions in credit risks. Based on a steadily growing market, there is a high demand for concepts and techniques applicable to the evaluation of structured credit products.

Written from the perspective of practitioners who apply mathematical concepts to structured credit products, Structured Credit Portfolio Analysis, Baskets & CDOs starts with a brief wrap-up on basic concepts of credit risk modeling and then quickly moves on to more advanced topics such as the modeling and evaluation of basket products, credit-linked notes referenced to credit portfolios, collateralized debt obligations, and index tranches. The text is written in a self-contained style so readers with a basic understanding of probability will have no difficulties following it. In addition, many examples and calculations have been included to keep the discussion close to business applications. Practitioners as well as academics will find ideas and tools in the book that they can use for their daily work.

Zielgruppe

Risk and portfolio managers in banks and insurance companies; risk consultants and investment specialists; graduate students and researchers in financial mathematics

Autoren/Hrsg.

Bluhm, Christian

Overbeck, Ludger

Fachgebiete

• Mathematik | Informatik Mathematik Mathematik Allgemein

Inhaltsverzeichnis

From Single Credit Risks to Credit Portfolios

Modeling Single-Name Credit Risk

Ratings and Default Probabilities

Credit Exposure

Loss Given Default

Modeling Portfolio Credit Risk

Systematic and Idiosyncratic Credit Risk

Loss Distribution of Credit Portfolios

Practicability Versus Accuracy

Default Baskets

Introductory Example: Duo Baskets

First- and Second-to-Default Modeling

Derivation of PD Term Structures

A Time-Homogeneous Markov Chain Approach

A Non-Homogeneous Markov Chain Approach

Extrapolation Problems for PD Term Structures

Duo Basket Evaluation for Multi-Year Horizons

Dependent Default Times

Default Times and PD Term Structures

Survival Function and Hazard Rate

Calculation of Default Time Densities and Hazard
Rate Functions

From Latent Variables to Default Times

Dependence Modeling via Copula Functions

Copulas in Practice

Visualization of Copula Differences and Mathematical
Description by Dependence Measures

Impact of Copula Differences to the Duo Basket

A Word of Caution

Nth-to-Default Modeling

Nth-to-Default Basket with the Gaussian Copula
Nth-to-Default Basket with the Student-t Copula

Nth-to-Default Basket with the Clayton Copula

Nth-to-Default Simulation Study

Evaluation of Cash Flows in Default Baskets

Scenario Analysis

Example of a Basket Credit-Linked Note (CLN)

Collateralized Debt and Synthetic Obligations

A General Perspective on CDO Modeling

A Primer on CDOs

Risk Transfer

Spread and Rating Arbitrage

Funding Benefits

Regulatory Capital Relief

CDO Modeling Principles

CDO Modeling Approaches

Introduction of a Sample CSO

A First-Order Look at CSO Performance

Monte Carlo Simulation of the CSO

Implementing an Excess Cash Trap

Multi-Step and First Passage Time Models

Analytic, Semi-Analytic, and Comonotonic CDO Evaluation Approaches

Single-Tranche CDOs (STCDOs)

Basics of Single-Tranche CDOs

CDS Indices as Reference Pool for STCDOs

ITraxx Europe Untranched

ITraxx Europe Index Tranches: Pricing, Delta
Hedging, and Implied Correlations

Tranche Risk Measures

Expected Shortfall Contributions

Tranche Hit Contributions of Single Names

Applications: Asset Selection, Cost-to-Securitize
Remarks on Portfolios of CDOs

Some Practical Remarks

Suggestions for Further Reading
Appendix

The Gamma Distribution

The Chi-Square Distribution

The Student-t Distribution

A Natural Clayton-Like Copula Example

Entropy-Based Rationale for Gaussian and Exponential
Distributions as Natural Standard Choices
Tail Orientation in Typical Latent Variable Credit Risk Models

The Vasicek Limit Distribution

One-Factor Versus Multi-Factor Models

Description of the Sample Portfolio

CDS Names in CDX.NA.IG and iTraxx Europe