By Jeffrey R. Bohn
Cutting-edge concepts and instruments had to facilitate powerful credits portfolio administration and strong quantitative credits research
jam-packed with in-depth insights and professional suggestion, energetic credits Portfolio administration in perform serves as a entire advent to either the speculation and real-world perform of credits portfolio administration. The authors have written a textual content that's technical sufficient either by way of heritage and implementation to hide what practitioners and researchers want for really using a lot of these danger administration instruments in huge organisations yet which whilst, avoids technical proofs in prefer of actual applications. all through this publication, readers could be brought to the theoretical foundations of this self-discipline, and find out about structural, reduced-form, and econometric versions effectively utilized in the marketplace at the present time. The booklet is filled with hands-on examples and anecdotes. concept is illustrated with useful program. The authors' site offers extra software program instruments within the kind of Excel spreadsheets, Matlab code and S-Plus code. each one component of the publication concludes with assessment questions designed to spark additional dialogue and mirrored image at the options offered.
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Additional info for Active Credit Portfolio Management in Practice
The result is a measure of return over a particular time horizon of analysis that is the premium earned for taking credit risk. The credit risk premium is what we expect to earn above and beyond the cost of funds and the exposure’s expected loss. Now we have the conceptual pieces for building a high-performance (lower risk/higher return) credit portfolio. ). Subject to these constraints, we can compare the credit risk premium to the risk contribution for each existing exposure as well as each possible new exposure to determine which exposures to hold and which to sell out of the portfolio or buy protection on.
FRAMEWORK AT 30,000 FEET At a conceptual level, the models discussed in this book provide insight into the return and risk trade-off among exposures in a credit portfolio. The stand-alone risk of a particular exposure tends to be the easiest to understand and act upon. Most analysts look to their wins in terms of which names they labeled correctly as high or low risk. The industry tends to remember the analyst who identified a deteriorating credit well before this deterioration was reflected in that obligor’s loan, bond, or CDS price.
This does not imply that they are anywhere near fully mature. The development of these markets has not been smooth, The Framework: Definitions and Concepts 11 as exemplified by the recent credit crisis resulting in the dramatic reduction in issuance volume in many sectors of the market for CDOs in late 2007 and the overall difficulties across most credit markets in 2008. That said, the CDS market remains the primary place to trade corporate credit risk and it appears to be here to stay despite recent drops in volume.