Semi Markov Migration Models For Credit Risk

Author : Guglielmo D'Amico
Publisher : John Wiley & Sons
ISBN 13 : 1848219059
Total Pages : 318 pages
Book Rating : 4.52/5 ( download)

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Download or read book Semi-Markov Migration Models for Credit Risk written by Guglielmo D'Amico and published by John Wiley & Sons. This book was released on 2017-06-26 with total page 318 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit risk is one of the most important contemporary problems for banks and insurance companies. Indeed, for banks, more than forty percent of the equities are necessary to cover this risk. Though this problem is studied by large rating agencies with substantial economic, social and financial tools, building stochastic models is nevertheless necessary to complete this descriptive orientation. This book presents a complete presentation of such a category of models using homogeneous and non-homogeneous semi-Markov processes developed by the authors in several recent papers. This approach provides a good method of evaluating the default risk and the classical VaR indicators used for Solvency II and Basel III governance rules. This book is the first to present a complete semi-Markov treatment of credit risk while also insisting on the practical use of the models presented here, including numerical aspects, so that this book is not only useful for scientific research but also to managers working in this field for banks, insurance companies, pension funds and other financial institutions.

Author : Alfredo Camacho Valle
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.44/5 ( download)

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Download or read book Credit Risk Modeling in a Semi-Markov Process Environment written by Alfredo Camacho Valle and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent times, credit risk analysis has grown to become one of the most important problems dealt with in the mathematical finance literature. Fundamentally, the problem deals with estimating the probability that an obligor defaults on their debt in a certain time. To obtain such a probability, several methods have been developed which are regulated by the Basel Accord. This establishes a legal framework for dealing with credit and market risks, and empowers banks to perform their own methodologies according to their interests under certain criteria. Credit risk analysis is founded on the rating system, which is an assessment of the capability of an obligor to make its payments in full and on time, in order to estimate risks and make the investor decisions easier. Credit risk models can be classified into several different categories. In structural form models (SFM), that are founded on the Black & Scholes theory for option pricing and the Merton model, it is assumed that default occurs if a firm's market value is lower than a threshold, most often its liabilities. The problem is that this is clearly is an unrealistic assumption. The factors models (FM) attempt to predict the random default time by assuming a hazard rate based on latent exogenous and endogenous variables. Reduced form models (RFM) mainly focus on the accuracy of the probability of default (PD), to such an extent that it is given more importance than an intuitive economical interpretation. Portfolio reduced form models (PRFM) belong to the RFM family, and were developed to overcome the SFM's difficulties. Most of these models are based on the assumption of having an underlying Markovian process, either in discrete or continuous time. For a discrete process, the main information is containted in a transition matrix, from which we obtain migration probabilities. However, according to previous analysis, it has been found that this approach contains embedding problems. The continuous time Markov process (CTMP) has its main information contained in a matrix Q of constant instantaneous transition rates between states. Both approaches assume that the future depends only on the present, though previous empirical analysis has proved that the probability of changing rating depends on the time a firm maintains the same rating. In order to face this difficulty we approach the PD with the continuous time semi-Markov process (CTSMP), which relaxes the exponential waiting time distribution assumption of the Markovian analogue. In this work we have relaxed the constant transition rate assumption and assumed that it depends on the residence time, thus we have derived CTSMP forward integral and differential equations respectively and the corresponding equations for the particular cases of exponential, gamma and power law waiting time distributions, we have also obtained a numerical solution of the migration probability by the Monte Carlo Method and compared the results with the Markovian models in discrete and continuous time respectively, and the discrete time semi-Markov process. We have focused on firms from U.S.A. and Canada classified as financial sector according to Global Industry Classification Standard and we have concluded that the gamma and Weibull distribution are the best adjustment models.

Author : P.-C.G. Vassiliou
Publisher : CRC Press
ISBN 13 : 135198070X
Total Pages : 607 pages
Book Rating : 4.08/5 ( download)

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Download or read book Non-Homogeneous Markov Chains and Systems written by P.-C.G. Vassiliou and published by CRC Press. This book was released on 2022-12-21 with total page 607 pages. Available in PDF, EPUB and Kindle. Book excerpt: Non-Homogeneous Markov Chains and Systems: Theory and Applications fulfills two principal goals. It is devoted to the study of non-homogeneous Markov chains in the first part, and to the evolution of the theory and applications of non-homogeneous Markov systems (populations) in the second. The book is self-contained, requiring a moderate background in basic probability theory and linear algebra, common to most undergraduate programs in mathematics, statistics, and applied probability. There are some advanced parts, which need measure theory and other advanced mathematics, but the readers are alerted to these so they may focus on the basic results. Features A broad and accessible overview of non-homogeneous Markov chains and systems Fills a significant gap in the current literature A good balance of theory and applications, with advanced mathematical details separated from the main results Many illustrative examples of potential applications from a variety of fields Suitable for use as a course text for postgraduate students of applied probability, or for self-study Potential applications included could lead to other quantitative areas The book is primarily aimed at postgraduate students, researchers, and practitioners in applied probability and statistics, and the presentation has been planned and structured in a way to provide flexibility in topic selection so that the text can be adapted to meet the demands of different course outlines. The text could be used to teach a course to students studying applied probability at a postgraduate level or for self-study. It includes many illustrative examples of potential applications, in order to be useful to researchers from a variety of fields.

Author : Marine Habart-Corlosquet
Publisher : John Wiley & Sons
ISBN 13 : 1118733983
Total Pages : 176 pages
Book Rating : 4.81/5 ( download)

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Download or read book VaR Methodology for Non-Gaussian Finance written by Marine Habart-Corlosquet and published by John Wiley & Sons. This book was released on 2013-05-06 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the impact of the recent financial crises, more attention must be given to new models in finance rejecting “Black-Scholes-Samuelson” assumptions leading to what is called non-Gaussian finance. With the growing importance of Solvency II, Basel II and III regulatory rules for insurance companies and banks, value at risk (VaR) – one of the most popular risk indicator techniques plays a fundamental role in defining appropriate levels of equities. The aim of this book is to show how new VaR techniques can be built more appropriately for a crisis situation. VaR methodology for non-Gaussian finance looks at the importance of VaR in standard international rules for banks and insurance companies; gives the first non-Gaussian extensions of VaR and applies several basic statistical theories to extend classical results of VaR techniques such as the NP approximation, the Cornish-Fisher approximation, extreme and a Pareto distribution. Several non-Gaussian models using Copula methodology, Lévy processes along with particular attention to models with jumps such as the Merton model are presented; as are the consideration of time homogeneous and non-homogeneous Markov and semi-Markov processes and for each of these models. Contents 1. Use of Value-at-Risk (VaR) Techniques for Solvency II, Basel II and III. 2. Classical Value-at-Risk (VaR) Methods. 3. VaR Extensions from Gaussian Finance to Non-Gaussian Finance. 4. New VaR Methods of Non-Gaussian Finance. 5. Non-Gaussian Finance: Semi-Markov Models.

Author : Stefan Trueck
Publisher : Academic Press
ISBN 13 : 0080920306
Total Pages : 279 pages
Book Rating : 4.06/5 ( download)

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Download or read book Rating Based Modeling of Credit Risk written by Stefan Trueck and published by Academic Press. This book was released on 2009-01-15 with total page 279 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the last decade rating-based models have become very popular in credit risk management. These systems use the rating of a company as the decisive variable to evaluate the default risk of a bond or loan. The popularity is due to the straightforwardness of the approach, and to the upcoming new capital accord (Basel II), which allows banks to base their capital requirements on internal as well as external rating systems. Because of this, sophisticated credit risk models are being developed or demanded by banks to assess the risk of their credit portfolio better by recognizing the different underlying sources of risk. As a consequence, not only default probabilities for certain rating categories but also the probabilities of moving from one rating state to another are important issues in such models for risk management and pricing. It is widely accepted that rating migrations and default probabilities show significant variations through time due to macroeconomics conditions or the business cycle. These changes in migration behavior may have a substantial impact on the value-at-risk (VAR) of a credit portfolio or the prices of credit derivatives such as collateralized debt obligations (D+CDOs). In Rating Based Modeling of Credit Risk the authors develop a much more sophisticated analysis of migration behavior. Their contribution of more sophisticated techniques to measure and forecast changes in migration behavior as well as determining adequate estimators for transition matrices is a major contribution to rating based credit modeling. Internal ratings-based systems are widely used in banks to calculate their value-at-risk (VAR) in order to determine their capital requirements for loan and bond portfolios under Basel II One aspect of these ratings systems is credit migrations, addressed in a systematic and comprehensive way for the first time in this book The book is based on in-depth work by Trueck and Rachev

Author : Harley Thompson
Publisher :
ISBN 13 :
Total Pages : 19 pages
Book Rating : 4.21/5 ( download)

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Download or read book A Note on Fitting Markov Operator Credit Risk Models written by Harley Thompson and published by . This book was released on 2008 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate a Markov operator credit migration model in which credit conditions vary through time in response to underlying macroeconomic factors. Emphasis is given to practical issues arising when fitting the model to a portfolio of risk rated credits, including the treatment of incomplete data, accounting for portfolio regeneration and aggregation issues.

Author :
Publisher : Rozenberg Publishers
ISBN 13 : 9051709293
Total Pages : 221 pages
Book Rating : 4.92/5 ( download)

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Download or read book The dynamics of cooperate credit risk. An intensity-based econometric written by and published by Rozenberg Publishers. This book was released on 2008 with total page 221 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : Ferdinand Othieno
Publisher :
ISBN 13 :
Total Pages : 29 pages
Book Rating : 4.47/5 ( download)

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Download or read book Semi-Markov Credit Risk Modeling for a Portfolio of Consumer Loans in the Kenyan Banking Industry written by Ferdinand Othieno and published by . This book was released on 2014 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on simulations of implied values for credit worthiness over a period of 5 years for 1000 consumers, we establish a case for the semi-markov models as a proxy for internal credit risk models for a portfolio of consumer loans. With ample calibration, we prove the robustness of the semi-markov models in forecasting probabilities of default and loss given default. With a view of credit risk as a reliability problem, we generate credit risk indicators as qualifications of adequacy of a loan portfolio. This informs prospective holding of capital based on forecast delinquencies as opposed to the current retrospective practice that relies on the trigger event of default. We use Monte-Carlo simulation techniques to generate consumer ratings and adopt this to the Merton model to derive the initial probability transition matrix. Initial consumer rating is in accordance with industry practice using a credit score sheet backed by the logit model. The banking credit function could espouse the study results to fulfill regulatory credit risk capital requirements for consumer loans in line with the Central Bank of Kenya Prudential Risk Guidelines or banks in other jurisdictions compliant with the Basel banking framework.

Author : Philipp J. Schönbucher
Publisher : John Wiley & Sons
ISBN 13 : 0470868171
Total Pages : 396 pages
Book Rating : 4.71/5 ( download)

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Download or read book Credit Derivatives Pricing Models written by Philipp J. Schönbucher and published by John Wiley & Sons. This book was released on 2003-10-31 with total page 396 pages. Available in PDF, EPUB and Kindle. Book excerpt: The credit derivatives market is booming and, for the first time, expanding into the banking sector which previously has had very little exposure to quantitative modeling. This phenomenon has forced a large number of professionals to confront this issue for the first time. Credit Derivatives Pricing Models provides an extremely comprehensive overview of the most current areas in credit risk modeling as applied to the pricing of credit derivatives. As one of the first books to uniquely focus on pricing, this title is also an excellent complement to other books on the application of credit derivatives. Based on proven techniques that have been tested time and again, this comprehensive resource provides readers with the knowledge and guidance to effectively use credit derivatives pricing models. Filled with relevant examples that are applied to real-world pricing problems, Credit Derivatives Pricing Models paves a clear path for a better understanding of this complex issue. Dr. Philipp J. Schönbucher is a professor at the Swiss Federal Institute of Technology (ETH), Zurich, and has degrees in mathematics from Oxford University and a PhD in economics from Bonn University. He has taught various training courses organized by ICM and CIFT, and lectured at risk conferences for practitioners on credit derivatives pricing, credit risk modeling, and implementation.

Author : André Monteiro
Publisher :
ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.03/5 ( download)

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Download or read book Non-parametric Estimation for Non-homogeneous Semi-Markov Processes written by André Monteiro and published by . This book was released on 2006 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: