This paper explores the implications of systemic risk in Credit Structured Finance (CSF). Risk measurement issues loomed large during the 2007-08 financial crisis, as the massive, unprecedented number of downgrades of AAA senior bond tranches inflicted severe losses on banks, calling into...

This paper presents a framework in which many structural credit risk models can be made hybrid by randomizing the default trigger, while keeping the capital structure intact. This produces random recovery rates negatively correlated with the default probability. The approach is implemented on a...

We propose an empirical framework to assess joint and conditional probabilities of credit events from CDS prices observed in the market. Our model is based on a dynamic skewed-t distribution that captures many salient features of CDS data, including skewed and heavy-tailed changes in the price...

The New Basel Capital Accord will allow the determination of banks' regulatory capital requirements due to probabilities of default which are estimated and forecasted from internal ratings. Broadly, two rating philosophies are distinguished: Through the Cycle versus Point in Time Ratings. We...

Credit risk refers to the likelihood that a firm or individual borrower will fail to meet a debt obligation. Credit risk evaluation is a very challenging and important problem in the domain of financial risk management. There are different methods and approaches for constructing credit risk...

This paper reviews the literature on credit risk models. Topics included are structural and reduced form models, incomplete information, credit derivatives, and default contagion. It is argued that reduced form models and not structural models are appropriate for the pricing and hedging of...

Credit scoring models play a fundamental role in the risk management practice at most banks. They are used to quantify credit risk at counterparty or transaction level in the different phases of the credit cycle (e.g. application, behavioural, collection models). The credit score empowers users...

This paper empirically investigates the impact of internal ratings-based (IRB) approach on the risk weight under Basel II. Assuming increasing cost of raising new capital when the requirement constraint is violated, this paper estimates the difference of unknown risk weight parameters between...