内容课件参考文稿jonathan整理的bf lecture11.pptxVIP

Credit Risk Credit Risk – Why Important?As normal in finance there is a trade off between risk and return.Bodies with higher credit risk have to pay more to borrow (greater chance they won’t pay their borrowings back).Effects companies and even sovereign nations.Last few years banks being downgraded. Ireland, Greece etc.Credit Risk – Why Important?Miscalculations in this area have led to the recent global crisis.This lecture deals with the basics of credit risk.Next lecture looks at credit derivatives.Credit Ratings – Corporate BondsIn the SP rating system, AAA is the best rating. After that comes AA, A, BBB, BB, B, CCC, CC, and CThe corresponding Moody’s ratings are Aaa, Aa, A, Baa, Ba, B, Caa, Ca, and CBonds with ratings of BBB (or Baa) and above are considered to be “investment grade”Historical Data Historical data provided by rating agencies are also used to estimate the probability of defaultCumulative Ave Default Rates (%) (1970-2006, Moody’s)InterpretationThe table shows the probability of default for companies starting with a particular credit ratingA company with an initial credit rating of Baa has a probability of 0.181% of defaulting by the end of the first year, 0.506% by the end of the second year, and so onDo Default Probabilities Increase with Time?For a company that starts with a good credit rating default probabilities tend to increase with timeFor a company that starts with a poor credit rating default probabilities tend to decrease with time Default Intensities vs Unconditional Default Probabilities The default intensity (also called hazard rate) is the probability of default for a certain time period conditional on no earlier defaultThe unconditional default probability is the probability of default for a certain time period as seen at time zeroWhat are the default intensities and unconditional default probabilities for a Caa rate company in the third year?Default Intensities vs Unconditional Default Probabilities Default intensities and unco