By Jeffrey R. Bohn
Cutting-edge suggestions and instruments had to facilitate potent credits portfolio administration and powerful quantitative credits research
choked with in-depth insights and professional recommendation, energetic credits Portfolio administration in perform serves as a accomplished advent to either the speculation and real-world perform of credits portfolio administration. The authors have written a textual content that's technical adequate either when it comes to historical past and implementation to hide what practitioners and researchers want for truly employing all these danger administration instruments in huge corporations yet which even as, avoids technical proofs in prefer of genuine applications. all through this publication, readers may be brought to the theoretical foundations of this self-discipline, and find out about structural, reduced-form, and econometric versions effectively utilized in the industry this day. The publication is stuffed with hands-on examples and anecdotes. thought is illustrated with useful program. The authors' site offers extra software program instruments within the kind of Excel spreadsheets, Matlab code and S-Plus code. each one part of the ebook concludes with evaluation questions designed to spark additional dialogue and mirrored image at the ideas awarded.
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Additional resources for Active Credit Portfolio Management in Practice
BUILDING BLOCKS OF PORTFOLIO RISK Understanding the portfolio framework requires definitions of the key components used for credit portfolio analysis: Probability of default (PD): The probability that an obligor will not meet a stated obligation. In the case of a loan, the obligor is the borrower and the obligation is to pay a regular coupon and repay the principal at maturity. A PD will have a time horizon attached to it. Loss given default (LGD): The amount lost when an obligor fails to meet a stated obligation.
Sometimes a credit exposure does not even reflect actual cash being loaned right away. Instead of a straight term loan, a bank may extend a commitment to lend with a variety of conditions as to the terms of borrowing. We typically refer to loans where cash is actually disbursed as funded and commitments to lend as unfunded. ) options. In fact, most credit instruments represent a portfolio of options. Credit exposure also arises in the context of more traditional derivative transactions such as equity options and interest rate swaps.
Historically, credit has been defined in terms of the borrowing and lending of money. Credit transactions differ from other investments in the nature of the contract they represent. Contracts where fixed payments are determined up front over a finite time horizon differentiate a credit instrument from an equity instrument. Unlike credit instruments, equity instruments tend to have no specific time horizon in their structure and reflect a claim to a share of an entity’s future profits, no matter how large these profits become.