SUMMARY

Edited and introduced by Alexander Lipton, the leading expert in the field of credit modelling, this collection of technical papers on this complex area of financial engineering is the first book in the new Cutting Edge series. Contributions have been gathered from 32 authors, including some of the most well known names in the field: Oldrich Vasicek, who received a Lifetime Achievement Award from Risk, and Leif Andersen, Michael Gordy, Alexander Lipton, Richard Martin, and Philip Schönbucher – all of whom have received Quant of the Year Awards from Risk.

The book is divided into three main sections: defaults of individual obligors, defaults in large portfolios, and defaults in medium and small portfolios, and will be of great interest to practitioners and academics alike.

Risk Books Cutting Edge series:
The Risk Books Cutting Edge Series is a new series that presents key technical papers drawn from the Cutting Edge section of Risk, the world's leading financial risk management magazine. Each volume provides an introduction from an industry expert, and explores how academic thinking has developed over the years, how market applications and practitioner usage has evolved, and future developments in the field.

This is the first book in the Risk Books Cutting Edge series. The second book in the series is now available:

Portfolio Management, introduced by Bernd Scherer

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  TABLE OF CONTENTS

Preface

About the Editor

About the Authors

Introduction
Alexander Lipton
Merrill Lynch

PART I DEFAULTS OF INDIVIDUAL OBLIGORS
The Price of Credit
Philippe Khuong-Huu; Vladimir Finkelstein; Bruce Broder
Alphadyne Asset Management; Horton Point LLC; JP Morgan

Equity to Credit Pricing
George Pan
Saba Principal Strategies

Assets with Jumps
Alexander Lipton
Merrill Lynch

A Measure of Survival
Philipp Schönbucher
Goldman Sachs

Hybrid Equity-Credit Modelling
Marc Atlan and Boris Leblanc
BNP Paribas

PART II DEFAULTS IN LARGE PORTFOLIOS
Reconcilable Differences
H. Ugur Koyluoglu; Andrew Hickman
Oliver,Wyman & Company; QVT Financial

Copulas and Credit Models
Rüdiger Frey; Alexander McNeil; Mark Nyfeler
University of Leipzig; Heriot-Watt University; UBS

Loan Portfolio Value
Oldrich Vasicek
Moody’s KMV

Random Tranches
Michael Gordy; David Jones
US Federal Reserve Board

An Indirect View from the Saddle
Richard J. Martin; Roland Ordovàs
Credit Suisse; Grupo Santander

PART III DEFAULTS IN MEDIUM AND SMALL PORTFOLIOS
Pricing Default Baskets
Wolfgang Schmidt; Ian Ward
Frankfurt School of Finance and Management; Imperial College

Long or Short in CDOs
Hans Boscher; Ian Ward
Deutsche Bank; Imperial College

Calculating Portfolio Loss
Sandro Merino and Mark Nyfeler
UBS

I Will Survive
Jean-Paul Laurent; Jon Gregory
ISFAActuarial School, University of Lyon and BNP Paribas;
Super Senior Consulting

All Your Hedges in One Basket
Leif Andersen; Jakob Sidenius; Susanta Basu
Banc of America Securities; JP Morgan;
Och-Ziff Capital Management

Dynamic Frailties and Credit Portfolio Modelling
Martin Delloye; Jean-David Fermanian; Mohammed Sbai
Dexia; BNP Paribas; CERMICS

Gamma Process Dynamic Modelling of Credit
Martin Baxter
Nomura

Factor Models for Credit Correlation
Stewart Inglis and Alexander Lipton
Merrill Lynch

Index

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  AUTHOR BIOGRAPHY

Alex Lipton is a Managing Director and Global Head of Credit Analytics at Merrill Lynch, and a Visiting Professor of Mathematics at Imperial College London. Prior to his current role, he was a Managing Director and Head of Credit Analytics at Citadel Investment Group in Chicago; he has also worked at Credit Suisse, Deutsche Bank and Bankers Trust. Previously, Alex was a Full Professor of Mathematics at the University of Illinois at Chicago and a Consultant at Los Alamos National Laboratory. He received his undergraduate and graduate degrees from Lomonosov Moscow State University. His current interests include credit correlation and related topics, quantitative aspects of securitization, as well as technical trading strategies. In 2000 Alex was awarded the first Quant of the Year Award by Risk Magazine. Alex is the author of two books (Magnetohydrodynamics and Spectral Theory and Mathematical Methods for Foreign Exchange) and the editor of two more. He has published numerous research papers on hydrodynamics, magnetohydrodynamics, astrophysics, and financial engineering. Alex has given dozens of invited lectures at leading universities worldwide.

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  CONTRIBUTORS

Alexander Lipton; Alexander McNeil; Andrew Hickman; Boris Leblanc; David Jones; George Pan; Hans Boscher; Ian Ward; Jean-David Fermanian; Jean-Paul Laurent; Jon Gregory; Leif Andersen; Marc Atlan ; Mark Nyfeler; Martin Baxter; Michael Gordy; Oldrich Vasicek; Philipp Schönbucher; Philippe Khuong-Huu; Richard Martin; Roland Ordovas; Rudiger Frey; Sandro Merino; Stewart Inglis ; Ugur Koyluoglu; Wolfgang Schmidt
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