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Topic: Default risk

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	Credit Risk
		Given that default likelihood is affected by economic conditions and cycles, it must be assumed that to price credit derivatives accurately, there is a price of risk in the credit market that must be known.
		Default probabilities from rating agencies, such as Moody’s Investors Service or Standard and Poor’s: these tend to be accurate with hindsight, but may lag behind current events, often changing after they should have.
		Default instruments in the market: this method currently holds great promise, and may well be the choice for future calculations as the market becomes more liquid.
	www.financewise.com /public/edit/riskm/credit/cre-deriv.htm (2243 words)

	Managing Financial Risk, Smithson & Smith (Site not responding. Last check: 2007-11-05)
		Default risk is a function of essentially two factors: exposure and the probability of default.
		Default on a swap requires both that the party to the swap be in financial distress and that the remaining value on the contract be negative.
		The probability of default is determined by the credit worthiness of the counterparty, the maturity of the transaction, the counterparty's exposure to movements in the underlying and the volatility of the underlying.
	www.afn.org /~afn05451/ss_17.html (1122 words)

	Volatility \| A Credit Risk Perspective
		The joint industry-working group believes that the substantial assets in Low Default Portfolios should not be excluded from the IRB approach due to the absence of statistical data to establish and validate PD, LGD and EAD estimates.
		A-rated companies might have 10 bps of default risk during an average year, but in any particular year, their default risk will be higher or lower than this.
		It is common to calculate the observed LGD experienced from actual defaults, and then use the average of such LGDs as a factor to be applied in the capital model to predict the loss that could be experienced from new defaults.
	volatility.brannan.org (3921 words)

	EXVaR Risk Management: Risk Software suite - Chosen By Paris Bourse to manage Financial Risk in Real-time with Full ...
		SFS is working with the best world risk specialists and researchers, participates in major Risk conferences and publishes its latest financial risk and pricing research.
		Risk reports are generated by the Risk software in a number of formats for regulatory and company management purposes.
		Measures the risk with respect to moves on stocks, commodities, currencies, interest rates and implied volatilities, according to historical risk factors statistics (see Data) and widely adopted pricers for derivatives (see coverage).
	software.clearingrisk.com (1568 words)

	Moody's KMV - The Leading Provider of Credit Risk Management Solutions (Site not responding. Last check: 2007-11-05)
		Default risk is the uncertainty surrounding a firm's ability to service its debts and obligations.
		Although loss given default is an important source of uncertainty in lending, the dominant source of uncertainty, and thereby risk, is the default probability itself.
		The accuracy of various credit risk calculations relies upon two key assumptions: (1) all assets within the rating grade have a single default rate, and (2) the default rate is equal to the historical average default rate.
	www.moodyskmv.com /research/defaultrisk.html (2510 words)

	Credit Risk
		Credit risk is risk due to uncertainty in a counterparty's (also called an obligor's or credit's) ability to meet its obligations.
		legal risk Risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations.
		With credit risk models starting to supplant traditional credit analysis, and regulators increasingly invoking agency credit ratings in their regulations, there is much controversy surrounding the use of credit ratings.
	www.riskglossary.com /articles/credit_risk.htm (1500 words)

	default risk Definition
		The possibility that a bond issuer will default, by failing to repay principal and interest in a timely manner.
		Bonds issued by the federal government, for the most part, are immune from default (if the government needs money it can just print more).
		Bonds issued by corporations are more likely to be defaulted on, since companies often go bankrupt.
	www.investorwords.com /1351/feedback.cgi?1351 (93 words)

	Default / Credit Risk Resources - Papers
		Recovery Rates / LGD (Loss Given Default): (66 downloadable papers posted) This model parameter is equally as significant to the accuracy of a default risk model as is the default likelihood (see "Credit Scoring" below), but there is by its nature less data with which to construct a good model.
		Liquidity Risk: (33 downloadable papers posted) Although the credit markets are generally achieving greater liquidity than even a few years ago, credit exposures are still very illiquid.
		It might mean, 1) the institution's risk of a funds shortage, or alternatively 2) the potential loss in a current/specific exposure's value due to delays in trading out.
	www.defaultrisk.com /papers.htm (827 words)

	risk neutral valuation - default risk (Site not responding. Last check: 2007-11-05)
		I've started to investigate reduced form credit risk model some weeks ago and I have some problems understanding concepts of risk neutral valuation.
		Basicaly, people using reduced form model value a risky bond as : PV = (PD * (1-LGD) + (1-PD)) / (1+Risk free) Hypothesis is that risky bond has 2 possible outcomes that should be discounted at risk free rate.
		When we use those kind of approaches to infer PDs from spreads of risky bonds, we come to "risk neutral" PDs that are much higher that historical default rates.
	www.contingencyanalysis.com /archive/archive04-2/00000776.htm (141 words)

	Morgan Stanley (Site not responding. Last check: 2007-11-05)
		It is not hard to be concerned when the twin engines of global growth—US consumers and Chinese producers—both appear to be oblivious to the risks surrounding the current arrangement of lopsided consumption being financed by lopsided savings.
		Clearly, the risks of this have risen as a slow resumption of oil and gas production in the Gulf of Mexico has kept prices moving sharply higher, and retail gasoline prices have broken their extended down trend with sharp gains over the past few weeks.
		Second and probably even more important, we have built this forecast profile on the assumptions that the Euro area would be relatively resilient to the risks of a global slowdown and that growth would keep up with trend in the year ahead.
	www.morganstanley.com /GEFdata/digests/20041011-mon.html (11725 words)

	Fool.com: Munis Aren't Just for the Wealthy [Commentary] November 24, 2003
		The challenges facing many state budgets have added some risk to this sector, but it has also driven yields high enough to be tempting to investors, even without their tax advantages.
		The big risk here is that the bond issuer will run into financial trouble and won't be able to pay, which is exactly what happened to investors who purchased bonds from such companies as Enron.
		Though these bonds do have a very low default rate, there are many states and municipalities that are in serious financial trouble.
	www.fool.com /news/commentary/2003/commentary031124mse.htm (1526 words)

	DOES DEFAULT RISK IN COUPONS AFFECT THE VALUATION OF CORPORATE BONDS?: A CONTINGENT CLAIMS MODEL Magazine: Financial ... (Site not responding. Last check: 2007-11-05)
		Interest rate risk, however, is relatively independent of default risk so that the spreads remain unaffected.
		As default risk serves to reduce the value of the corporate bond, it takes lower interest rates to raise the value of the corporate bond to the call price.
		This suggests that care should be taken in interpreting empirical results regarding the effect of default risk on the values of callable corporate bonds.
	mgv.mim.edu.my /Articles/00265/960162.Htm (8060 words)

	[No title]
		Nonetheless, current models for credit risk are not designed to capture the specific dependence characteristics of a large mortgage portfolio.
		Our attention lies in a proper way of modeling default risk for individual residential mortgages, which is affected by macro-economic factors such as unemployment, mortgage and factors specific to the obligor.
		We consider the time to default, using a non-parametric proportional hazard model for the intensity process, which is assumed to depend on a set of factors (macro-economic, mortgage and obligor specific).
	www.risklab.ch /ftp/conference/Risk-Day-2001.tex (774 words)

	Moody's KMV - The Leading Provider of Credit Risk Management Solutions
		To identify private firm defaults, we have established partnerships with a large number of financial institutions around the world that provide us with extensive data on defaults, financial statements, and loan performance details.
		Considered to be best-of-breed, they are recognized as the most accurate measures of default risk and feature the most comprehensive geographic coverage of public and private firms.
		In partnership with our clients, we incorporate our credit risk measurement and modeling capabilities into solutions that allow businesses to better manage credit exposures—from leveraging their fundamental credit analysis resources to constructing better portfolios.
	www.kmv.com /about/index.html (795 words)

	The Australian: Mortgage default risk to rise: survey [July 19, 2005] (Site not responding. Last check: 2007-11-05)
		AUSTRALIA'S mortgage default risk remains relatively low, though the risk of default is rising in Victoria, an index has found.
		The national index for the the June quarter was 33, with the index based on a numerical reading relative to an eighteen year running average of 100.
		Across the states, risk levels were considered stable in markets in NSW (29), Queensland (30), South Australia (32), Western Australia (33) and Tasmania (32) when compared with previous levels.
	www.theaustralian.news.com.au /common/story_page/0,5744,15979915%255E1702,00.html (223 words)

	Junk Bonds: Everything You Need to Know (Site not responding. Last check: 2007-11-05)
		Investment grade bonds might not offer huge returns, but the risk of the borrower defaulting on interest payments is much smaller.
		Although junk bonds pay high yields, they also carry higher than average risk of the company defaulting on the bond.
		Another thing to look for is the default rate on junk bonds.
	www.investopedia.com /articles/02/052202.asp (855 words)

	Neighborhood Effects in Mortgage Default Risk (Site not responding. Last check: 2007-11-05)
		This study examines the effect of neighborhood characteristics on the default of FHA mortgages.
		Research on the effects of neighborhood characteristics on default has been somewhat limited in the past, and this study's contribution to the literature is the inclusion of credit history data.
		The analysis finds that lower tract income and higher tract fl composition are associated with higher rates of default, whereas individual borrower race or income are unrelated to default.
	www.huduser.org /publications/hsgfin/defaultrisk.html (146 words)

	RiskCenter: A Financial Risk Management Media Company
		There were changes to risk scores in 17 countries during the latest monthly updating cycle of the RiskWire model.
		Effects of Hurricane Katrina are not expected to affect ratings in the US oil and gas sector, it is too early to fully assess the damage to infrastructure that could have resulted from the storm.
		According to a recent Moody’s report, credit risk was found to be related to CEO compensation.
	www.riskcenter.com (1645 words)

	The Valuation of Default Risk in Corporate Bonds and Interest Rate Swaps - Nielsen, Ronn (ResearchIndex) (Site not responding. Last check: 2007-11-05)
		The analytical approach considers the two essential ingredients in the valuation of corporate bonds: interest rate uncertainty and default risk.
		The latter is modeled as a spread following a diffusion process, with the magnitude of this spread impacting on the probability of a Poisson process governing the arrival of the default event.
		On the magnitude risk of default the current In...
	citeseer.lcs.mit.edu /nielsen96valuation.html (582 words)

	Financial Risk Management
		Everyone talks about risk, but no one seems to want to define it.
		Glyn Holton's classic paper explores the implications of the subjective nature of risk for value-at-risk measures.
		They were using an internally developed financial risk management system to monitor market risk and economic capital.
	www.contingencyanalysis.com (589 words)

	"Kamakura Announces New Private Firm Model for Small Business Default Probabilities"
		For additional information on private firm modeling and the macro-economic drivers of default, see Credit Risk Models and the Basel Accords by Kamakura's Donald R. van Deventer and Kenji Imai, available on www.amazon.com.
		Kamakura is also the first company in the world to develop and install a fully integrated credit risk, market risk, asset and liability management, and transfer pricing system.
		Kamakura's risk management software is currently used in the United States, Germany, Canada, the United Kingdom, and many countries in Asia.
	www.kamakuraco.com /pr_012704.htm (609 words)

	401khelpcenter.com - Glossary of 401k, Retirement, and Investment Terms (Site not responding. Last check: 2007-11-05)
		A rough measure of financial risk: the smaller current assets relative to current liabilities,the greater the risk of credit failure.
		The risk that a company will be unable to pay the contractual interest or principal on its debt obligations.
		The practice of spreading risk by investing in a number of securities that have different return patterns over time.
	www.401khelpcenter.com /glossary.html (1817 words)

	EconPapers: Default Risk and the Effective Duration of Bonds
		Basis risk is the risk attributable to uncertain movements in the spread between yields associated with a particular financial instrument or class of instruments, and a reference interest rate over time.
		Basis risk makes it difficult for the fixed-income portfolio manager to measure the portfolio's exposure to interest rate risk, heightens the anxiety of traders and arbitrageurs who are hedging their investments, and compounds the financial institution's problem of matching assets and liabilities.
		The authors estimate how much durations shorten because of credit risk, basing their estimates on observable data and easily estimated bond pricing parameters.
	econpapers.hhs.se /paper/wbkwbrwps/1511.htm (381 words)

	Credit Risk Modeling Links: Vendors, Web Resources, Data, Rating Agencies, Regulators
		Moody's Risk Management Services, Algorithmics, C*ATS which was acquired by MKIRisk and later rebranded as Misys-International Banking Systems, FinCAD Excel Add-ins, Gifford Fong Associates, FRONT ARENA
		Risk Integrated is a consulting and technology company focused on financial institutions.
		Moody's is also one of the leading sources for solidly data based research.
	www.defaultrisk.com /links.htm (659 words)

	Kamakura Corporation Home Page
		To drive the value, you must truly understand the risk.
		Analyzing the symptoms of risk will not bring this understanding.
		To do this, you need analytics that are all encompassing, yet based on logical and intuitive concepts.
	www.kamakuraco.com (90 words)

	Risk Day, October 19, 2001
		Abstract: Market risk management, portfolio optimization and option pricing methods can only be as good as the model of the underlying volatility process.
		An outlook will be given on how to use these techniques for portfolio optimisation and risk management at longer time horizons.
		A technique from generalized additive models is used for estimation and the contribution of each factor to the default intensity is computed.
	www.math.ethz.ch /finance/Risk-Day-2001.html (1106 words)

	Default risk... (Site not responding. Last check: 2007-11-05)
		Yet, Merton as well as other recent theories presume that the asset value of the firm is independent of the debt of the firm.
		However, when using debt finance firms may have to pay a premium for an idiosyncratic default risk and may face debt constraints.
		We demonstrate that firm specific debt constraints and endogeneous risk premia, based on collateralized borrowing, affect the asset value of the firm and, in turn, the collateral value of the firm.
	www.uni-bayreuth.de /departments/math/~lgruene/publ/defaultrisk.html (194 words)

	DefaultRisk.com The largest collections of credit risk modeling resource
		This is the web's most comprehensive credit risk modeling and measurement resource for corporate debt.
		A study of defaults in France, Germany, and the UK
		Although I am the principal author of CreditMetrics® (and have a natural affinity for it), I am more of an advocate for the continued study of credit risk modeling.
	www.defaultrisk.com (1584 words)

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