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Credit Risk [electronic resource]: Pricing, Measurement, and Management
Duffie, Darrell Author
imprint
Princeton : Princeton University Press Jan. 2003 Ewing : California Princeton Fulfillment Services [Distributor]
description
464 p. ill 09.000 x 06.000 in.
ISBN
0691090467 (Trade Cloth), 9780691090467
format(s)
Book
Holdings
More Details
imprint
Princeton : Princeton University Press Jan. 2003 Ewing : California Princeton Fulfillment Services [Distributor]
isbn
0691090467 (Trade Cloth)
9780691090467
standard identifier
9780691090467
restrictions
Licensed for access by U. of T. users.
abstract
Annotation

In this book, two of America's leading economists provide the first integrated treatment of the conceptual, practical, and empirical foundations for credit risk pricing and risk measurement. Masterfully applying theory to practice, Darrell Duffie and Kenneth Singleton model credit risk for the purpose of measuring portfolio risk and pricing defaultable bonds, credit derivatives, and other securities exposed to credit risk. The methodological rigor, scope, and sophistication of their state-of-the-art account is unparalleled, and its singularly in-depth treatment of pricing and credit derivatives further illuminates a problem that has drawn much attention in an era when financial institutions the world over are revising their credit management strategies.

Duffie and Singleton offer critical assessments of alternative approaches to credit-risk modeling, while highlighting the strengths and weaknesses of current practice. Their approach blends in-depth discussions of the conceptual foundations of modeling with extensive analyses of the empirical properties of such credit-related time series as default probabilities, recoveries, ratings transitions, and yield spreads. Both the "structura" and "reduced-form" approaches to pricing defaultable securities are presented, and their comparative fits to historical data are assessed. The authors also provide a comprehensive treatment of the pricing of credit derivatives, including credit swaps, collateralized debt obligations, credit guarantees, lines of credit, and spread options. Not least, they describe certain enhancements to current pricing and management practices that, they argue, will better position financial institutions for future changes in the financial markets.

Credit Riskis an indispensable resource for risk managers, traders or regulators dealing with financial products with a significant credit risk component, as well as for academic researchers and students.

catalogue key
11948408
target audience
College Audience Princeton University Press
A Look Inside
About the Author
Author Affiliation
Darrell Duffie is the James Irvin Miller Professor of Finance at the Graduate School of Business, Stanford University.
Excerpts
Flap Copy
"A clear and comprehensive treatment of credit risk models by two of the leading authorities in the field. It will become the standard reference for both academic researchers and practitioners."--Michael J. Brennan, The Anderson School at UCLA "Duffie and Singleton provide the first comprehensive, yet readable, treatment of the challenging subject of credit risk. This book will undoubtedly become the ultimate reference for both academics and risk professionals who care to venture beyond the traditional alleys."--Michel Crouhy, Head of Business Analytic Solutions, Canadian Imperial Bank of Commerce "Duffie and Singleton have written an indispensable guide both to the models and to their implementation. The mathematical workings of the models are conveyed with superb clarity and intuition. Just as importantly, the presentation is well grounded in the economic and institutional features of credit markets. We thereby gain insight into the empirical plausibility of modeling assumptions and guidance on robust model calibration."--Michael Gordy "Darrell Duffie and Kenneth Singleton have set the standard on credit modeling. Not only is the book appealing to an academic but it also speaks to practitioners. It has the double virtue of being elegant and practical. Further, many if not most of the results are original to the authors."--Larry Eisenberg, President, The Risk Engineering Company "I like this book very much and shall use it profitably both for my own research and teaching. Duffie and Singleton develop the intellectual basis for understanding, modeling, and measuring credit risk and then develop the issue of risk management. This approach is both intuitive and natural. I can think of no scholars better qualified than they to embark on this ambitious task."--Suresh M. Sundaresan, Graduate School of Business, Columbia University "Overall, the book succeeds in motivating the reader to consider the alternative approaches to modeling credit risk. . . . Although the book is technically rigorous, the presentation is straightforward so even a casual reader will learn from the authors' insights. Moreover, the seasoned analyst will benefit from the concise summary of many existing techniques."--Amnon Levy,Risk
Flap Copy
"A clear and comprehensive treatment of credit risk models by two of the leading authorities in the field. It will become the standard reference for both academic researchers and practitioners."-- Michael J. Brennan, The Anderson School at UCLA "Duffie and Singleton provide the first comprehensive, yet readable, treatment of the challenging subject of credit risk. This book will undoubtedly become the ultimate reference for both academics and risk professionals who care to venture beyond the traditional alleys."-- Michel Crouhy, Head of Business Analytic Solutions, Canadian Imperial Bank of Commerce "Duffie and Singleton have written an indispensable guide both to the models and to their implementation. The mathematical workings of the models are conveyed with superb clarity and intuition. Just as importantly, the presentation is well grounded in the economic and institutional features of credit markets. We thereby gain insight into the empirical plausibility of modeling assumptions and guidance on robust model calibration."-- Michael Gordy "Darrell Duffie and Kenneth Singleton have set the standard on credit modeling. Not only is the book appealing to an academic but it also speaks to practitioners. It has the double virtue of being elegant and practical. Further, many if not most of the results are original to the authors."-- Larry Eisenberg, President, The Risk Engineering Company "I like this book very much and shall use it profitably both for my own research and teaching. Duffie and Singleton develop the intellectual basis for understanding, modeling, and measuring credit risk and then develop the issue of risk management. This approach is both intuitive and natural. I can think of no scholars better qualified than they to embark on this ambitious task."-- Suresh M. Sundaresan, Graduate School of Business, Columbia University "Overall, the book succeeds in motivating the reader to consider the alternative approaches to modeling credit risk. . . . Although the book is technically rigorous, the presentation is straightforward so even a casual reader will learn from the authors' insights. Moreover, the seasoned analyst will benefit from the concise summary of many existing techniques."-- Amnon Levy, Risk
Flap Copy
"A clear and comprehensive treatment of credit risk models by two of the leading authorities in the field. It will become the standard reference for both academic researchers and practitioners."--Michael J. Brennan, The Anderson School at UCLA "Duffie and Singleton provide the first comprehensive, yet readable, treatment of the challenging subject of credit risk. This book will undoubtedly become the ultimate reference for both academics and risk professionals who care to venture beyond the traditional alleys."--Michel Crouhy, Head of Business Analytic Solutions, Canadian Imperial Bank of Commerce "Duffie and Singleton have written an indispensable guide both to the models and to their implementation. The mathematical workings of the models are conveyed with superb clarity and intuition. Just as importantly, the presentation is well grounded in the economic and institutional features of credit markets. We thereby gain insight into the empirical plausibility of modeling assumptions and guidance on robust model calibration."--Michael Gordy "Darrell Duffie and Kenneth Singleton have set the standard on credit modeling. Not only is the book appealing to an academic but it also speaks to practitioners. It has the double virtue of being elegant and practical. Further, many if not most of the results are original to the authors."--Larry Eisenberg, President, The Risk Engineering Company "I like this book very much and shall use it profitably both for my own research and teaching. Duffie and Singleton develop the intellectual basis for understanding, modeling, and measuring credit risk and then develop the issue of risk management. This approach is both intuitive and natural. I can think of no scholars better qualified than they to embark on this ambitious task."--Suresh M. Sundaresan, Graduate School of Business, Columbia University "Overall, the book succeeds in motivating the reader to consider the alternative approaches to modeling credit risk. . . . Although the book is technically rigorous, the presentation is straightforward so even a casual reader will learn from the authors' insights. Moreover, the seasoned analyst will benefit from the concise summary of many existing techniques."--Amnon Levy, Risk
Reviews
Review Quotes
This is certainly the best book on credit risk available on the market for academics and practitioners. I recommend the book to academics and professionals, and also for the teaching of credit risk at Masters and PhD levels.
"This is certainly the best book on credit risk available on the market for academics and practitioners. I recommend the book to academics and professionals, and also for the teaching of credit risk at Masters and PhD levels."-- Georges Dionne, Journal of Risk and Insurance
This is certainly the best book on credit risk available on the market for academics and practitioners. I recommend the book to academics and professionals, and also for the teaching of credit risk at Masters and PhD levels. -- Georges Dionne, Journal of Risk and Insurance
A clear and comprehensive treatment of credit risk models by two of the leading authorities in the field. It will become the standard reference for both academic researchers and practitioners.
Darrell Duffie and Kenneth Singleton have set the standard on credit modeling. Not only is the book appealing to an academic but it also speaks to practitioners. It has the double virtue of being elegant and practical. Further, many if not most of the results are original to the authors.
Duffie and Singleton have written an indispensable guide both to the models and to their implementation. The mathematical workings of the models are conveyed with superb clarity and intuition. Just as importantly, the presentation is well grounded in the economic and institutional features of credit markets. We thereby gain insight into the empirical plausibility of modeling assumptions and guidance on robust model calibration.
Duffie and Singleton provide the first comprehensive, yet readable, treatment of the challenging subject of credit risk. This book will undoubtedly become the ultimate reference for both academics and risk professionals who care to venture beyond the traditional alleys.
I like this book very much and shall use it profitably both for my own research and teaching. Duffie and Singleton develop the intellectual basis for understanding, modeling, and measuring credit risk and then develop the issue of risk management. This approach is both intuitive and natural. I can think of no scholars better qualified than they to embark on this ambitious task.
Overall, the book succeeds in motivating the reader to consider the alternative approaches to modeling credit risk. . . . Although the book is technically rigorous, the presentation is straightforward so even a casual reader will learn from the authors' insights. Moreover, the seasoned analyst will benefit from the concise summary of many existing techniques.
To find out how to look for other reviews, please see our guides to finding book reviews in the Sciences or Social Sciences and Humanities.
Summaries
Bowker Data Service Summary
The authors present alternative approaches to credit risk modeling with the empirical properties of credit-related time series such as defaults, recoveries, transitions and yield spreads.
Main Description
In this book, two of America's leading economists provide the first integrated treatment of the conceptual, practical, and empirical foundations for credit risk pricing and risk measurement. Masterfully applying theory to practice, Darrell Duffie and Kenneth Singleton model credit risk for the purpose of measuring portfolio risk and pricing defaultable bonds, credit derivatives, and other securities exposed to credit risk. The methodological rigor, scope, and sophistication of their state-of-the-art account is unparalleled, and its singularly in-depth treatment of pricing and credit derivatives further illuminates a problem that has drawn much attention in an era when financial institutions the world over are revising their credit management strategies. Duffie and Singleton offer critical assessments of alternative approaches to credit-risk modeling, while highlighting the strengths and weaknesses of current practice. Their approach blends in-depth discussions of the conceptual foundations of modeling with extensive analyses of the empirical properties of such credit-related time series as default probabilities, recoveries, ratings transitions, and yield spreads. Both the "structura" and "reduced-form" approaches to pricing defaultable securities are presented, and their comparative fits to historical data are assessed. The authors also provide a comprehensive treatment of the pricing of credit derivatives, including credit swaps, collateralized debt obligations, credit guarantees, lines of credit, and spread options. Not least, they describe certain enhancements to current pricing and management practices that, they argue, will better position financial institutions for future changes in the financial markets. Credit Risk is an indispensable resource for risk managers, traders or regulators dealing with financial products with a significant credit risk component, as well as for academic researchers and students.
Main Description
In this book, two of America's leading economists provide the first integrated treatment of the conceptual, practical, and empirical foundations for credit risk pricing and risk measurement. Masterfully applying theory to practice, Darrell Duffie and Kenneth Singleton model credit risk for the purpose of measuring portfolio risk and pricing defaultable bonds, credit derivatives, and other securities exposed to credit risk. The methodological rigor, scope, and sophistication of their state-of-the-art account is unparalleled, and its singularly in-depth treatment of pricing and credit derivatives further illuminates a problem that has drawn much attention in an era when financial institutions the world over are revising their credit management strategies. Duffie and Singleton offer critical assessments of alternative approaches to credit-risk modeling, while highlighting the strengths and weaknesses of current practice. Their approach blends in-depth discussions of the conceptual foundations of modeling with extensive analyses of the empirical properties of such credit-related time series as default probabilities, recoveries, ratings transitions, and yield spreads. Both the "structura" and "reduced-form" approaches to pricing defaultable securities are presented, and their comparative fits to historical data are assessed. The authors also provide a comprehensive treatment of the pricing of credit derivatives, including credit swaps, collateralized debt obligations, credit guarantees, lines of credit, and spread options. Not least, they describe certain enhancements to current pricing and management practices that, they argue, will better position financial institutions for future changes in the financial markets. Credit Riskis an indispensable resource for risk managers, traders or regulators dealing with financial products with a significant credit risk component, as well as for academic researchers and students.
Table of Contents
Prefacep. xi
Acknowledgmentsp. xiii
Introductionp. 1
A Brief Zoology of Risksp. 3
Organization of Topicsp. 7
Economic Principles of Risk Managementp. 12
What Types of Risk Count Most?p. 13
Economics of Market Riskp. 15
Economic Principles of Credit Riskp. 26
Risk Measurementp. 29
Measuring Credit Riskp. 38
Default Arrival: Historical Patterns and Statistical Modelsp. 43
Introductionp. 43
Structural Models of Default Probabilityp. 53
From Theory to Practice: Using Distance to Default to Predict Defaultp. 57
Default Intensityp. 59
Examples of Intensity Modelsp. 64
Default-Time Simulationp. 72
Statistical Prediction of Bankruptcyp. 74
Ratings Transitions: Historical Patterns and Statistical Modelsp. 85
Average Transition Frequenciesp. 85
Ratings Risk and the Business Cyclep. 87
Ratings Transitions and Agingp. 91
Ordered Probits of Ratingsp. 92
Ratings as Markov Chainsp. 94
Conceptual Approaches to Valuation of Default Riskp. 100
Introductionp. 100
Risk-Neutral versus Actual Probabilitiesp. 102
Reduced-Form Pricingp. 106
Structural Modelsp. 112
Comparisons of Model-Implied Spreadsp. 114
From Actual to Risk-Neutral Intensitiesp. 118
Pricing Corporate and Sovereign Bondsp. 122
Uncertain Recoveryp. 122
Reduced-Form Pricing with Recoveryp. 125
Ratings-Based Models of Credit Spreadsp. 137
Pricing Sovereign Bondsp. 146
Empirical Models of Defaultable Bond Spreadsp. 156
Credit Spreads and Economic Activityp. 156
Reference Curves for Spreadsp. 162
Parametric Reduced-Form Modelsp. 166
Estimating Structural Modelsp. 169
Parametric Models of Sovereign Spreadsp. 171
Credit Swapsp. 173
Other Credit Derivativesp. 173
The Basic Credit Swapp. 175
Simple Credit-Swap Spreadsp. 178
Model-Based CDS Ratesp. 185
The Role of Asset Swapsp. 190
Optional Credit Pricingp. 194
Spread Optionsp. 194
Callable and Convertible Corporate Debtp. 201
A Simple Convertible Bond Pricing Modelp. 215
Correlated Defaultsp. 229
Alternative Approaches to Correlationp. 229
CreditMetrics Correlated Defaultsp. 230
Correlated Default Intensitiesp. 233
Copula-Based Correlation Modelingp. 237
Empirical Methodsp. 242
Default-Time Simulation Algorithmsp. 243
Joint Default Eventsp. 247
Collateralized Debt Obligationsp. 250
Introductionp. 250
Some Economics of CDOsp. 252
Default-Risk Modelp. 255
Pricing Examplesp. 260
Default Loss Analyticsp. 271
Computation of Diversity Scoresp. 280
Over-the-Counter Default Risk and Valuationp. 285
Exposurep. 285
OTC Credit Risk Value Adjustmentsp. 295
Additional Swap Credit Adjustmentsp. 304
Credit Spreads on Currency Swapsp. 311
Integrated Market and Credit Risk Measurementp. 314
Market Risk Factorsp. 315
Delta-Gamma for Derivatives with Jumpsp. 326
Integration of Market and Credit Riskp. 332
Examples of VaR with Credit Riskp. 334
Introduction to Affine Processesp. 346
Econometrics of Affine Term-Structure Modelsp. 362
HJM Spread Curve Modelsp. 367
Referencesp. 371
Indexp. 385
Table of Contents provided by Syndetics. All Rights Reserved.

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