Credit Risk Modelling

Credit risk is the largest and most important risk any financial institution faces. The recent credit crises are striking proof of this fact. This course covers different topics in credit risk modeling; more specifically the topics are:

• Structural Models (Firm Value models): The Merton model
• Markov processes in credit risk, Markov Chains, Markov jump processes. The matrix-exponential and its properties, ratings etc
• Intensity based models in credit risk models.
• Pricing defaultable bonds using intensity based models
• Static credit portfolio models and their use in risk management computations such as Value-at-Risk and Expected shortfall
• The Credit Default Swap (CDS).
• Modeling and pricing a CDS
• The Index CDS and basket default swaps (k-th-to default swaps)
• Modelling and Pricing an index CDS and basked default swaps
• Basel III, Conterparty credit risk, credit value adjustment and related issues