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CRMM-16-credit-risks-and-credit-derivatives.html
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<!doctype html>
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<title>Credit Risk Measurement and Management | Chapter 16 | Credit Risks and Credit Derivatives</title>
<meta name="description" content="Financial Risk Manager Part 2 Study Materials">
<meta name="author" content="MacLane Wilkison">
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<section>
<h1>Chapter 16</h1>
<h3>Credit Risks and Credit Derivatives</h3>
<p>
<small>Created for <a href="http://alchemistsacademy.com">Alchemists Academy</a> by <a href="http://alchemistsacademy.com/about">MacLane Wilkison</a></small>
</p>
</section>
<section>
<h2>Credit Risks as Options</h2>
<ul>
<li>S<sub>T</sub> = Max(V<sub>T</sub>-F, 0)</li>
<li>D<sub>T</sub> = F - Max(F-V<sub>T</sub>, 0)</li>
</ul>
<aside class="notes">
S<sub>T</sub> = value of equity at date T. V<sub>T</sub> = value of firm at date T. F = face value of debt. D<sub>T</sub> = market value of debt at time T.
</aside>
</section>
<section>
<h2>Credit Risk Models</h2>
<ul>
<li>CreditRisk+</li>
<li>CreditMetrics</li>
<li>KMV Model</li>
</ol>
</section>
<section>
<h2>Credit Derivatives</h2>
<p><em>Definition: Hedging instruments for credit risks</em></p>
<ul>
<li>Credit events include (1) failure to make a required payment, (2) restructuring that makes any creditor worse off, (3) invocation of a cross-default clause, and (4) bankruptcy</li>
<li>Credit derivatives include puts, swap contracts, credit default swaps, total return swaps, and futures contracts</li>
</ul>
</section>
<section>
<h1>THE END</h1>
<h3><a href="http://alchemistsacademy.com">AlchemistsAcademy.com</a></h3>
</section>
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