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Credit Risk Modelling - Facts, Theory and Applications

By Terry Benzschawel


Credit Risk Modelling gives you a framework to understand how credit risk is measured, priced and managed.

The importance of accurately modelling and managing credit risk is continuously growing, regulatory changes and evolving risk management practices have led to Banks looking a lot more closely at credit risk.

Publish date: 30 May 2012

Availability: In stock

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Credit Risk Modelling - Facts, Theory and Applications
eBook - Credit Risk Modelling - Facts, Theory and Applications

Book description

The author, Terry Benzschawel, succeeds in breaking down credit risk modelling into something that is easy to understand. The book does three main things:

  • Describe data, theory and applications regarding corporations’ and sovereign nations’ likelihoods of default.
  • Explain how the market prices the risk of default and its associated risk premiums.
  • Present methods and examples of how this information can be used to manage the risk of credit portfolios and for trading of corporate bonds and credit default swaps.

By providing an understanding of a previously very confused topic, the book will help interpret the facts of credit in a way that makes sense.  This is done by providing theoretically sound and consistent methods for valuing bonds, loans and credit derivatives that is consistent with the facts of credit defaults and spreads.

This book is a must-read for anyone wishing to understand credit risk from mathematical and intuitive perspectives.  It is a point of reference for all credit risk modelling practitioners.

Book details

Book - 9781906348588 / eBook - 9781908823809
Publish date
30 May 2012
155mm x 235mm

Author biography

Terry Benzschawel

Terry Benzschawel is a Managing Director in Bond Portfolio Analysis of Citigroup’s Institutional Clients Business. Terry heads the Portfolio Analysis and Quantitative Strategies group which develops and implements quantitative tools and strategies for credit market trading and risk management, both for Citi’s clients and for in-house applications. Some sample tools include models of corporate default and recovery values, relative value of corporate bonds, loans, and credit default swaps, credit portfolio optimization, credit derivative trades, capital structure arbitrage, and cross-credit-sector asset allocation. After six years of post-doctoral research in academia and industry and two years in consumer banking, Terry began his investment banking career in at Salomon Brothers in 1992. Terry built models for proprietary arbitrage trading in bonds, currencies and derivative securities in Salomon's Fixed Income Arbitrage Group. In 1998, he moved to the Fixed Income Strategy department as a credit strategist with a focus on client-oriented solutions across all credit markets. Terry received his Ph.D. in Experimental Psychology from Indiana University (1980) and his B.A. (with Distinction) from the University of Wisconsin (1975). Terry has done post-doctoral fellowships in Optometry at the University of California at Berkeley and in Ophthalmology at the Johns Hopkins University School of Medicine and was a visiting scientist at the IBM Thomas J. Watson Research Center prior to embarking on a career in finance.

Table of contents


SECTION I: Facts, Tools and Theory

Part I: Credit Risk – Facts and Basic Tools

1.      Credit Risk
2.      Rating Agencies, Default Risk and Loss Given Default
3.      Default

Part II: Modelling Credit Risk

4.      Fundamental Analysis
5.      Statistical and Reduced Form Credit Models
6.      Structural and Hybrid Credit Models
7.      Market-Implied Default Models
8.      Models of Loss Given Default
9.      Credit Momentum, Beta and Relative Value

SECTION II: Applications and Advanced Topics

Part I: Portfolio Optimization and Credit Trading Strategies

10.    Estimating Losses on Portfolios
11.    Optimizing Risk and Return on Credit Portfolios
12.    Analysing Portfolio Risk and Relative Value
13.    Structured Credit Products

Part II: Theoretical Issues and Miscellaneous Topics

14.   Discounting Default-Risky Contingent Cash Flows
15.   Cash Flow Model for Credit Default Swaps
16.   Pricing Corporate Loans
17.   Market Liquidity
18.   Cross-Sector Credit Analysis and Portfolio Optimization

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