Credit risk - Home Ko#231; #220;niversitesi信用风险# 231家Ko ； # 220 niversitesi；.pptVIP

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2018-04-12 发布于江西
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Credit risk - Home Ko#231; #220;niversitesi信用风险# 231家Ko ； # 220 niversitesi；.ppt

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Creditrisk-HomeKoamp;#231;amp;#220;niversitesi信用风险#231家Koamp;；amp;#220niversitesi；.ppt

Credit risk Probability of default (PD) and loss-given-default (LGD). Typically measured by credit ratings, but most banks also have their own internal ratings systems for borrowers In the SP/Fitch rating system, AAA is the best rating. After that comes AA, A, BBB, BB, B, and CCC The corresponding Moody’s ratings are Aaa, Aa, A, Baa, Ba, B, and Caa Bonds with ratings of BBB (or Baa) and above are considered to be “investment grade” Altman’s z-score (for manufacturing firms) X1=Working Capital/Total Assets X2=Retained Earnings/Total Assets X3=EBIT/Total Assets X4=Market Value of Equity/Book Value of Liabilities X5=Sales/Total Assets Z=1.2X1+1.4X2+3.3X3+0.6X4+0.99X5 If the Z3.0 default is unlikely; if 2.7Z3.0 we should be on alert. If 1.8Z2.7 there is a moderate chance of default; if Z1.8 there is a high chance of default Estimating default probabilities Alternatives: Use historical data Use bond prices or asset swaps Use CDS spreads Use Merton’s model Cumulative Average Default Rates % (1970-2007, Moody’s) Interpretation The table shows the probability of default for companies starting with a particular credit rating A company with an initial credit rating of Baa has a probability of 0.170% of defaulting by the end of the first year, 0.478% by the end of the second year, and so on… For a company that starts with a good credit rating default probabilities tend to increase with time. For a company that starts with a poor credit rating default probabilities tend to decrease with time. Default Intensity vs. Unconditional Default Probability The default intensity or hazard rate is the probability of default conditional on no earlier default The unconditional default probability is the probability of default as seen at time zero What are the default intensities and unconditional default probabilities from the Moody’s table for a Caa rate company in the third year? Recovery rate The recovery rate for a bond is usually defined as the price of the bond