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Recent Advances in Credit Risk Modeling

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  • Jose Giancarlo Gasha
  • Andre Santos
  • Jorge A. Chan-Lau
  • Carlos I. Medeiros
  • Marcos Souto
  • Christian Capuano

Abstract

As is well known, most models of credit risk have failed to measure the credit risks in the context of the global financial crisis. In this context, financial industry representatives, regulators and academics worldwide have given new impetus to efforts to improve credit risk modeling for countries, corporations, financial institutions, and financial instruments. The paper summarizes some of the recent advances in this regard. It considers modifications of structural models, including of the classical Merton model, and efforts to reconcile the structural and the reduced-form models. It also discusses the reassessment of the default correlations using copulas, the pricing of credit index options, and the determination of the prices of distressed debt and estimation of recovery values.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/162.

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Length: 31
Date of creation: 01 Aug 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/162

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Keywords: Credit risk; Bankruptcy; Bonds; Economic models; External debt; Financial risk; Financial sector; Sovereign debt; correlation; probability; correlations; arbitrage; credit risks; random variables; markov chain; diffusion process; martingale; risk modeling; calibration; normal distribution; equations; stochastic process; applications; probabilities; diffusion processes; covariance; martingales; probability distributions; poisson distributions; computation; risk management; statistics; random variable; calculus; probability density function; imperfect information; counting; stochastic processes; mathematical statistics; point process; predictability; multivariate distribution; risk transfer; computations; emerging markets; equation; time series; probability density; integral; credit ratings; normal distributions; quantitative research; diffusion model; financial systems; integrals; markov process; perfect information; mathematics; forecasting;

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References

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Citations

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Cited by:
  1. William Lang & Julapa Jagtiani, 2010. "The Mortgage and Financial Crises: The Role of Credit Risk Management and Corporate Governance," Atlantic Economic Journal, International Atlantic Economic Society, vol. 38(2), pages 123-144, June.
  2. Sokolov, Yuri, 2010. "Business cycle effects on portfolio credit risk: A simple FX Adjustment for a factor model," MPRA Paper 27222, University Library of Munich, Germany.
  3. Lang, William W. & Jagtiani, Julapa, 2010. "The Mortgage Financial Crises: The Role of Credit Risk Management and Corporate Governance," Working Papers 10-12, University of Pennsylvania, Wharton School, Weiss Center.

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