Ch11信用风险（估计违约概率）.ppt

Credit risk Credit risk refers to the risk that a borrower will default on any type of debt by failing to make required payments EDWARD I. ALTMAN(New York University) Z-score How to discrimination? Zones of Discrimination: Z 3.0 -“Safe” Zones 2.7Z3.0 “Alert” Zones 1.8 Z 2.7 -“Grey” Zones Z 1.8 -“Distress” Zones a number that tells you how likely a company is to head toward serious financial difficulty in about two years or less. Estimate PD by historical data The simplest approach, taken by many banks, is to use external ratings agencies such as Standard and Poors, Fitch or Moodys Investors Service for estimating PDs from historical default experience Historical data provided by rating agencies can be used to estimate the probability of default Other methods Alternatives: Use bond prices or asset swaps Use CDS spreads Use Merton’s model * * Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 Credit Default Swaps and Bond Yields (page 298) Portfolio consisting of a 5-year par yield corporate bond that provides a yield of 6% and a long position in a 5-year CDS costing 100 basis points per year is (approximately) a long position in a riskless instrument paying 5% per year What are arbitrage opportunities in this situation is risk-free rate is 4.5%? What if it is 5.5%? * Risk-free Rate The risk-free rate used by bond traders when quoting credit spreads is the Treasury rate The risk-free rate used in the credit markets is the LIBOR/swap rate Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 * Asset Swaps Asset swaps are used by the market as an estimate of the bond yield relative to LIBOR The present value of the asset swap spread is the present value of the cost of default Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 * Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 Asset Swaps (page 299) Suppose a