Transition matrices are an important determinant for risk management and VaR calculations in credit portfolios. It is well known that rating migration behavior is not constant through time. It shows cyclical behavior and significant changes over the years. We investigate the effect of changes in...

The paper gives a survey on recent developments on the use of numerical methods in rating based Credit Risk Models. Generally such models use transition matrices to describe probabilities from moving from one rating state to the other and to calculate Value-at-Risk figures for portfolios. We...

In this paper we address the issue of modeling spot electricity prices. After summarizing the stylized facts about spot electricity prices, we review a number of models proposed in the literature. Afterwards we fit a jump diffusion and a regime switching model to spot prices from the Nordic...

This article reviews the final changes in the Benchmark Risk Weight Function of the Basel II proposal as of June 2004. A special focus is directed to the impact of the proposed changes to the segment of Small and Mid-Sized Enterprises (SME). One of the main objectives of the recalibration of the...

The Basel II Capital Accord requires banks to determine the capital charge to account for operational losses. Compound Poisson process with Lognormal losses is suggested for this purpose. The paper examines the impact of possibly censored and/or truncated data on the estimation of loss...

In this paper we analyze the short-term spot price behavior of carbon dioxide (CO2) emission allowances of the new EU-wide CO2 emissions trading system (EU-ETS). After reviewing the stylized facts of this new class of assets we investigate several approaches for modeling the returns of emission...

We investigate the term structure of credit spreads and credit default swaps for different rating categories. It is well-known quite that for issuers with lower credit quality higher spreads can be observed in the market and vice versa. However, empirical results on spreads for bonds with the...

The liberalization of electricity markets has forced the energy producing companies to react to the new situation. The abolishment of monopolies and the launch of open markets have increased the need of calculating costs closer to the profit frontier to be still competitive, not only against the...

We review different methods for simulating credit migrations in a nonparametric and discrete or continuous-time Markov chain framework. We suggest the use of a factor model approach in combination with the use of copulas for the joint dynamics of credit rating changes.While there are several...