This book could have been more useful if it had focused on the subject of its title. As it is currently, awaiting revision, do not spend your money. Either search for books that are general or await a new book that does justice to credit risk and analysis.
Author(s): Srichander Ramaswamy
Edition: 1
Publisher: Wiley
Year: 2003
Language: English
Pages: 291
Managing Credit Risk in Corporate Bond Portfolios A Practitioner’s Guide......Page 4
Contents......Page 8
FOREWORD......Page 14
PREFACE......Page 16
Motivation......Page 18
Summary of the Book......Page 19
Characterizing Probability Distributions......Page 22
Useful Probability Distributions......Page 25
Joint Distributions......Page 27
Stochastic Processes......Page 29
Linear Algebra......Page 30
Inverse of a Matrix......Page 31
Properties of Symmetric Matrices......Page 32
Cholesky Decomposition......Page 33
Markov Matrix......Page 34
Principal Component Analysis......Page 36
Questions......Page 38
Features of Corporate Bonds......Page 40
Bond Collateralization......Page 41
Investment Risks......Page 43
Trading Costs......Page 45
Portfolio Management Style......Page 47
Pricing Anomalies......Page 48
Role of Corporate Bonds......Page 49
Relative Market Size......Page 52
Historical Performance......Page 54
Central Bank Reserves......Page 57
Pension Funds......Page 64
Questions......Page 67
Interest Rate Risk......Page 68
Modified Duration......Page 69
Approximating Price Changes......Page 70
Bonds with Embedded Options......Page 71
Portfolio Aggregates......Page 73
Dynamics of the Yield Curve......Page 74
Market Risk Model......Page 78
Questions......Page 82
Elements of Credit Risk......Page 84
Probability of Default......Page 85
Recovery Rate......Page 92
Rating Migrations......Page 94
Quantifying Credit Risk......Page 98
Expected Loss Under Default Mode......Page 100
Unexpected Loss Under Default Mode......Page 103
Expected Loss Under Migration Mode......Page 105
Unexpected Loss Under Migration Mode......Page 108
Numerical Example......Page 109
Questions......Page 111
Quantifying Portfolio Credit Risk......Page 112
Default Correlation......Page 115
Relationship to Loss Correlation......Page 116
Estimating Default Correlation......Page 117
Default Mode: Two-Bond Portfolio......Page 119
Estimating Asset Return Correlation......Page 121
Factor Models......Page 123
Approximate Asset Return Correlations......Page 126
Credit Risk Under Migration Mode......Page 128
Computing Joint Credit Loss......Page 131
Portfolio Credit Risk......Page 132
Numerical Example......Page 135
Questions......Page 138
Monte Carlo Methods......Page 140
Credit Loss Simulation......Page 142
Generating Correlated Asset Returns......Page 143
Computing Credit Loss......Page 145
Computing Expected Loss and Unexpected Loss......Page 147
Importance Sampling......Page 148
Credit Value at Risk......Page 149
Expected Shortfall Risk......Page 150
Numerical Results......Page 152
Questions......Page 155
CHAPTER 8 Relaxing the Normal Distribution Assumption......Page 156
Student’s t Distribution......Page 157
Portfolio Credit Risk......Page 159
Default Mode......Page 160
Migration Mode......Page 162
Loss Simulation......Page 166
Appendix......Page 168
Questions......Page 171
CHAPTER 9 Risk Reporting and Performance Attribution......Page 172
Relative Credit Risk Measures......Page 173
Marginal Credit Risk Contribution......Page 177
Portfolio Credit Risk Report......Page 179
Risk Reporting During Economic Contractions......Page 182
Portfolio Market Risk Report......Page 185
Risk Guidelines......Page 186
Performance Attribution......Page 187
A Simple Attribution Model......Page 189
Questions......Page 192
CHAPTER 10 Portfolio Optimization......Page 194
Portfolio Selection Techniques......Page 195
Benefits of a Quantitative Approach......Page 196
Linear Programming......Page 197
Nonlinear Programming......Page 198
Practical Difficulties......Page 199
Portfolio Construction......Page 200
Setting Up the Constraints......Page 202
The Optimization Problem......Page 204
Optimal Portfolio Composition......Page 205
Portfolio Rebalancing......Page 208
Identifying Sell Transactions......Page 209
Identifying the Rebalancing Trades......Page 211
Numerical Results......Page 214
Devil in the Parameters: A Case Study......Page 216
Risk Reduction......Page 220
Questions......Page 221
CHAPTER 11 Structured Credit Products......Page 223
Balance Sheet versus Arbitrage CDOs......Page 224
Cash Flow versus Market Value CDOs......Page 226
Investor Motivations......Page 227
Capital Structure......Page 228
How the Transaction Evolves......Page 230
Parties to a CDO......Page 231
Structural Protections......Page 232
Interest Rate Risk......Page 235
Reinvestment Risk......Page 236
Asset Manager Risk......Page 237
Rating a CDO Transaction......Page 238
Moody’s Method......Page 239
Standard & Poor’s Method......Page 243
Method of Fitch Ratings......Page 245
Tradable Corporate Bond Baskets......Page 247
Portfolio Composition and Risk Characteristics......Page 248
Implied Credit Rating......Page 250
Questions......Page 253
SOLUTIONS TO END-OF-CHAPTER QUESTIONS......Page 254
INDEX......Page 279
