Research Archive
A Multi-Factor Bottom-Up Model for Pricing Credit Derivatives on October 12th, 2011
Tsui, L. K., 2011: A Multi-Factor Bottom-Up Model for Pricing Credit Derivatives. Journal of Computational Finance, forthcoming.
In this paper we continue the study of the stress event model, a simple and intuitive dynamic model for credit risky portfolios, proposed by Duffie and Singleton (1999). The model is abottom-up version of the multi-factor portfolio credit model [..]
Rethinking Valuations: The Credit Crisis, Illiquid Markets and Model Risk on July 18th, 2011
Rosen D., 2010, Re-Thinking Valuation: The Credit Crisis, Illiquid Markets and Model Risk, Chapter 33 in “Rethinking Risk Measurement and Reporting: Uncertainty, Bayesian Analysis and Expert Judgement”, Klaus Böcker Editor, Riskbooks
In this chapter, we discuss several lessons and best practices that we are relearning as the global banking system copes with the legacy of the crisis. Given the inevitable limitations of our models, we stress the importance of a model risk and scenario analysis framework. While the main points are general, we focus on examples of the credit crisis and, in particular, industry experience in the area of structured finance. [..]
Pricing, Hedging and Managing the Risk of Structured Finance Portfolios on June 20th, 2011
RiskMinds USA
Boston, MA
June 16, 2011
Valuation of Structured Finance Products with Implied Factor Models on May 26th, 2011
Nedeljkovic J., Rosen D. and Saunders D., 2011, Valuation of Structured Finance Products with Implied Factor Models, in Credit Risk Frontiers: Subprime Crisis, Pri.ing and Hedging, CVA, MBS, Ratings, and Liquidity, T. Bielecki, D. Brigo, F. Patras (Editors), Wiley
The recent credit crisis has highlighted limitations of the industry’s general understanding and risk management practices of structured credit portfolios. Market participants clearly misunderstood and underestimated the risks in many securities, especially with respect to the default correlation, systematic risk and contagion effects. In particular, pricing models [..]
Credit Risk Contributions on May 26th, 2011
Rosen D., and Saunders D., 2011, Credit Risk Contributions, Chapter 22 in Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity, T. Bielecki, D. Brigo, F. Patras (Editors), Wiley, 2011
Once the risk of a portfolio is calculated, a natural question to ask is: where does the risk come from and what are the main contributors? We present a survey of the theory and practical uses of risk contributions in credit risk management. Applications presented include the computation of portfolio credit risk and the contributions of systematic and [..]
Pricing Counterparty Risk at the Trade Level and CVA Allocations on October 1st, 2010
Pykhtin M., Rosen D., 2010, Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board.
We address the problem of allocating the counterparty-level credit valuation adjustment (CVA) to the individual trades composing the portfolio. We show that this problem can be reduced to calculating contributions of the trades to the counterparty-level expected exposure (EE) conditional on the counterparty’s default. We propose a methodology for calculating [...]