Enterprise Risk Management Slides

Credit Risk [14]

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Bullet points include: In non-default states, we can price at date t a defaultable claim to pay 1 at date T > t as: Here st,T(r) is the spread at time t for maturity (T – t) and for initial rating r. Pt,T is the price (market value) of default free pure discount (i.e. zero-coupon) bond. May need a model for evolution of (risk-free) yield curve for some portfolio/pay-off types

Bullet points include: In non-default states, we can price at date t a defaultable claim to pay 1 at date T > t as: Here st,T(r) is the spread at time t for maturity (T – t) and for initial rating r. Pt,T is the price (market value) of default free pure discount (i.e. zero-coupon) bond. May need a model for evolution of (risk-free) yield curve for some portfolio/pay-off types

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