Credit Risk: From Transaction to Portfolio Management

Credit Risk: From Transaction to Portfolio Management

by Andrew Kimber
Released December 2003
Publisher(s): Butterworth-Heinemann
ISBN: 9780080472416

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Book description

'Credit Risk: from transaction to portfolio management' provides high level, focused analysis of the nature of credit risk in investment bank portfolio management. Written by experienced international practitioners, it offers in-depth information and advice that will help all those charged with managing credit risk at the sharp end.

Credit Risk Management strives to protect the capital and reputation of the bank while preserving its franchise and optimising long-term profitability. These goals are achieved by:

* Recommending suitable credit policies and guidelines
* Performing due diligence on the banks' customers
* Incorporating both quanitative and qualitative analysis to balance risk and return
* Providing creative advice to facilitate client transactions
* Coordinating legal and operational issues
* Embracing technological change to enhance bank effectiveness

'Credit Risk' provides financial institutions and their staff with everything they need to know about how to control and manage credit risk. It gives sound analysis of trading strategies and complex derivative product, offers an understanding of settlement procedures and legal issues, and shows how to accurately quantify and measure related risks.



Written by professionals for professionals - authors are from two of the world's largest international investment banksIn-depth, focused informationHigh level, comprehensive analysis of the subject

Table of contents

  1. Cover
  2. Credit Risk: From Transaction to Portfolio Management
  3. Contents
  4. Preface
  5. Acknowledgements
  6. 1 FIXED INCOME CREDIT: Managing credit within a fixed income portfolio
    1. 1.1 The credit product
      1. Introduction
    2. 1.2 Government bonds and credit
    3. 1.3 Benchmarks for credit
      1. Swap spreads
    4. 1.4 Corporate bonds
      1. The primary market
      2. The secondary market
      3. Regulatory environment
      4. Types of bond
    5. 1.5 Floating-rate notes
    6. 1.6 Credit related instruments
      1. Reverse FRN
      2. Capped FRN
      3. Collared FRN
      4. Equity-linked bonds
    7. 1.7 Asset-backed securities
    8. 1.8 International bonds
      1. The issuance process
      2. Syndicate members
      3. Pricing
      4. Fee structure
      5. Valuation and subsequent management
      6. Clearing systems
      7. Regulation and taxation
      8. International Securities Market Association
      9. MTN market
    9. 1.9 Commercial paper
    10. 1.10 High yield bonds
    11. 1.11 Credit risk (1/2)
    12. 1.11 Credit risk (2/2)
    13. 1.12 Risk management of fixed income portfolios
      1. Coupon bearing bond with standalone risk
      2. Combining the two bonds
      3. Gamma term
      4. Higher-order risk and tail risk
      5. A word on total risk
      6. A word on types of spread
    14. 1.13 Credit Metrics™
    15. 1.14 Credit Indices
      1. The choice of index
      2. The use of a credit index
      3. A good index system
      4. Swap-based indices
    16. 1.15 Optimizers
      1. Marginal measures of risk
    17. 1.16 Vasicek-Kealhofer EDF model (1/2)
    18. 1.16 Vasicek-Kealhofer EDF model (2/2)
    19. 1.17 Rating agencies
      1. The rating process
    20. References
  7. 2 THE LOAN PORTFOLIO: Loan portfolio management
    1. 2.1 What is loan portfolio management?
      1. Introduction
    2. 2.2 The loan market
      1. Syndicated market
      2. The secondary market
    3. 2.3 Definitions
      1. Term loan
      2. Revolving credit facility
      3. Standby facility
      4. US syndicated market
    4. 2.4 Relative value analysis
    5. 2.5 Term sheet of a loan
    6. 2.6 The syndication process
      1. Pre-mandate
      2. Post-mandate
      3. Post-signing
      4. Duties and roles
      5. The bidding process
      6. Pricing the loan
      7. Syndication strategy
    7. 2.7 Pricing within a commercial bank
    8. 2.8 Loan ratings
    9. 2.9 Risk management
    10. 2.10 Approaches to management
      1. Goals of portfolio management
    11. 2.11 Economic vs. regulatory capital
    12. 2.12 CAR
      1. Choice of horizon
      2. What horizon length should we deploy?
      3. Build of hurdle rate given a capital at risk (i.e. risk-adjusted return)
    13. 2.13 Loan case studies
      1. Introduction to the case studies
      2. The two asset portfolio
      3. Loan revaluation
      4. CAR for the portfolio
      5. The 100 asset portfolio
    14. 2.14 Concentration management
      1. How to define and manage concentration
    15. 2.15 Hedging techniques
      1. Securitization
      2. The asset portfolio
      3. Credit default swap
      4. Other credit derivatives
    16. 2.16 Central themes
      1. Expected loss
      2. Unexpected loss
      3. The default frequency
      4. Regulatory capital
      5. Basel II
      6. Technical detail of the models underlying the IRB
    17. References
  8. 3 CREDIT DERIVATIVES: What are credit derivatives?
    1. 3.1 Introduction
    2. 3.2 Why use credit derivatives?
      1. Confidentiality
      2. Shorting credit
      3. Off balance sheet nature
      4. Convention in the market
      5. Definition of a credit derivative
    3. 3.3 Definition of a credit event
      1. ISDA Credit derivative policy
    4. 3.4 Credit default swap
    5. 3.5 Total return swap
      1. TROR term sheet
      2. Settlement
      3. Funding opportunities
    6. 3.6 Securitization overview
      1. A typical managed CDO structure
      2. The synthetic CDO
      3. Collateral quality
    7. 3.7 Dynamic credit swaps
    8. 3.8 Credit options
    9. 3.9 Credit linked note
    10. 3.10 First to default
    11. 3.11 The default swap basis
      1. Long basis trade
      2. Buying protection
      3. Asset swap
    12. 3.12 Pricing
    13. 3.13 Source of pricing
    14. 3.14 Pricing examples
    15. 3.15 Regulatory environment
      1. Regulatory capital
      2. Regulatory capital example
    16. 3.16 Terminology
      1. Obligation
      2. Reference asset
      3. Materiality
      4. Substitution
      5. Basis risk
      6. 2003 Update
      7. Definition of bankruptcy as a credit event
      8. Four types of restructuring clause
      9. Definition of deliverable obligations
    17. References
  9. 4 SECURITIZATION: Credit within the context of securitization
    1. 4.1 Asset-backed securities
      1. Market review
      2. Major types of securitization
    2. 4.2 Mortgage-backed securities
      1. Tranche types
        1. Sequential pay
        2. Planned amortization
        3. Targeted amortization
        4. Support class
        5. Floating-rate tranches
        6. The call class
        7. IO and PO mortgage-backed securities
    3. 4.3 Auto and loan-backed securities
      1. European summary
    4. 4.4 Collateral analysis
    5. 4.5 Analysis of securities
      1. Other ways of evaluating pre-payment
      2. Modelling mortgages
    6. 4.6 The importance of credit derivatives
      1. The use of a default swap
      2. Glacier
      3. Broad Index Secured Trust Offering
    7. 4.7 Collateralized debt obligations
      1. Types of CDO
      2. Arbitrage CDOs
      3. Synthetic CLOs
    8. 4.8 CDO asset types
    9. 4.9 Credit enhancement
      1. External credit enhancement
      2. Internal credit enhancement
      3. Construction of financial securities
        1. The asset portfolio
        2. Asset backing
    10. 4.10 Detailed evaluation of asset backing and enhancement
    11. 4.11 Investor analysis
      1. Construction of financial securities
      2. Valuation of the investment grade assets
    12. References
  10. 5 THE CREDIT RISK OF INTEREST RATE PRODUCTS: Counterparty credit risk
    1. 5.1 Introduction
    2. 5.2 Exposures
      1. Current exposure
      2. Future exposure
      3. Example
    3. 5.3 FRN analysis
    4. 5.4 Swap
    5. Reference
  11. 6 THE FUNDAMENTALS OF CREDIT: Methodologies
    1. 6.1 The standalone loan
    2. 6.2 Standard measures
      1. Cumulative default frequency
      2. Marginal default probability
      3. Conditional default probability
      4. Default intensity
      5. Survival probability
    3. 6.3 A portfolio as a set of standalones
    4. 6.4 Introducing correlation
      1. Default correlations from default volatilities
    5. 6.5 Other approaches to default
      1. Volatility with different rates which vary and are correlated
      2. Higher order defaults
    6. 6.6 Copulas
    7. 6.7 Moody's diversity score
    8. 6.8 MKMV RiskCalc
    9. References
  12. INDEX
    1. A
    2. B
    3. C
    4. D
    5. E
    6. F
    7. G
    8. H
    9. I
    10. J
    11. K
    12. L
    13. M
    14. N
    15. O
    16. P
    17. R
    18. S
    19. T
    20. U
    21. V
    22. W
    23. Y

Product information

  • Title: Credit Risk: From Transaction to Portfolio Management
  • Author(s): Andrew Kimber
  • Release date: December 2003
  • Publisher(s): Butterworth-Heinemann
  • ISBN: 9780080472416