Levy Processes in Credit Risk. The Wiley Finance Series

  • ID: 1059346
  • Book
  • 200 Pages
  • John Wiley and Sons Ltd
1 of 4
"Schoutens and Cariboni are two of a horrifyingly small number of authors who realize that something had to be done about credit modelling. Theirs won′t be the final word on the subject but it′s better than almost everything else that′s been written."

Paul Wilmott, wilmott.com

"The book casts great light on the intricacies of structured products valuation at a time when credit jumps play a key role in the understanding of credit events."
Guido Bichisao, Head of Financial Engineering and Advisory Services, European Investment Bank

"Lévy processes represent a quantum leap over the continuous processes that
have previously been used in credit modeling."
Peter Carr, Head of Quantitative Research, Bloomberg LP and Director of Master Program in Mathematical Finance, NYC

"I recommend with pleasure the expert exposition of what real expertise has attained in an undoubtedly difficult yet critical arena of the financial markets. When such insight, intuition and intellectual perseverance offer leadership, it is foolhardy to look the other way. The book is must learn for all professionals."
Professor Dilip Madan, University of Maryland – Robert H. Smith School of Business

Note: Product cover images may vary from those shown
2 of 4
Preface.

Acknowledgements.

PART I: INTRODUCTION.

1 An Introduction to Credit Risk.

1.1 Credit Risk.

1.1.1 Historical and Risk–Neutral Probabilities.

1.1.2 Bond Prices and Default Probability.

1.2 Credit Risk Modelling.

1.3 Credit Derivatives.

1.4 Modelling Assumptions.

1.4.1 Probability Space and Filtrations.

1.4.2 The Risk–Free Asset.

2 An Introduction to Lévy Processes.

2.1 Brownian Motion.

2.2 Lévy Processes.

2.3 Examples of Lévy Processes.

2.3.1 Poisson Process.

2.3.2 Compound Poisson Process.

2.3.3 The Gamma Process.

2.3.4 Inverse Gaussian Process.

2.3.5 The CMY Process.

2.3.6 The Variance Gamma Process.

2.4 Ornstein Uhlenbeck Processes.

2.4.1 The Gamma–OU Process.

2.4.2 The Inverse Gaussian–OU Process.

PART II: SINGLE–NAME MODELLING.

3 Single–Name Credit Derivatives.

3.1 Credit Default Swaps.

3.1.1 Credit Default Swaps Pricing.

3.1.2 Calibration Assumptions.

3.2 Credit Default Swap Forwards.

3.2.1 Credit Default Swap Forward Pricing.

3.3 Constant Maturity Credit Default Swaps.

3.3.1 Constant Maturity Credit Default Swaps Pricing.

3.4 Options on CDS.

4 Firm–Value Lévy Models.

4.1 The Merton Model.

4.2 The Black Cox Model with Constant Barrier.

4.3 The Lévy First–Passage Model.

4.4 The Variance Gamma Model.

4.4.1 Sensitivity to the Parameters.

4.4.2 Calibration on CDS Term Structure Curve.

4.5 One–Sided Lévy Default Model.

4.5.1 Wiener Hopf Factorization and Default Probabilities.

4.5.2 Illustration of the Pricing of Credit Default Swaps.

4.6 Dynamic Spread Generator.

4.6.1 Generating Spread Paths.

4.6.2 Pricing of Options on CDSs.

4.6.3 Black s Formulas and Implied Volatility.

Appendix: Solution of the PDIE.

5 IntensityLévy Models.

5.1 Intensity Models for Credit Risk.

5.1.1 Jarrow Turnbull Model.

5.1.2 Cox Models.

5.2 The Intensity–OU Model.

5.3 Calibration of the Model on CDS Term Structures.

PART III: MULTIVARIATE MODELLING.

6 Multivariate Credit Products.

6.1 CDOs.

6.2 Credit Indices.

7 Collateralized Debt Obligations.

7.1 Introduction.

7.2 The Gaussian One–Factor Model.

7.3 Generic One–Factor Lévy Model.

7.4 Examples of Lévy Models.

7.5 Lévy Base Correlation.

7.5.1 The Concept of Base Correlation.

7.5.2 Pricing Non–Standard Tranches.

7.5.3 Correlation Mapping for Bespoke CDOs.

7.6 Delta–Hedging CDO tranches.

7.6.1 Hedging with the CDS Index.

7.6.2 Delta–Hedging with a Single–Name CDS.

7.6.3 Mezz–Equity hedging.

8 Multivariate Index Modelling.

8.1 Black s Model.

8.2 VG Credit Spread Model.

8.3 Pricing Swaptions using FFT.

8.4 Multivariate VG Model.

PART IV: EXOTIC STRUCTURED CREDIT RISK PRODUCTS.

9 Credit CPPIs and CPDOs.

9.1 Introduction.

9.2 CPPIs.

9.3 Gap Risk.

9.4 CPDOs.

10 Asset–Backed Securities.

10.1 Introduction.

10.2 Default Models.

10.2.1 Generalized Logistic Default Model.

10.2.2 Lévy Portfolio Default Model.

10.2.3 Normal One–Factor Default Model.

10.2.4 Generic One–Factor Lévy Default Model.

10.3 Prepayment Models.

10.3.1 Constant Prepayment Model.

10.3.2 Lévy Portfolio Prepayment Model.

10.3.3 Normal One–Factor Prepayment Model.

10.4 Numerical Results.

Bibliography.

Index.

Note: Product cover images may vary from those shown
3 of 4

Loading
LOADING...

4 of 4
"This text introduces into the use of Levy processes in credit risk modeling. After a general overview of credit risk and standard credit derivatives, the authors provide a short introduction into Levy processes in general. This material is then used to study single–name credit derivatives. Following this, the authors introduce into firm–value Levy models, including the Merton model, Black–Cox model, Levy first passage model, variance gamma model and the one sided Levy default model. The problem of calibration is discussed. After that, the authors introduce intensity Levy models such as the Jarrow and Turnbull model, the Cox model and the intensity–OU model. Multivariate credit products, collateralized debt obligations and multivariate index modeling are discussed in the following. In the final part of their book, the authors study credit CPPIs and CPDOs as well as asset–backed securities." (Zentralblatt MATH, 2010)

Note: Product cover images may vary from those shown
5 of 4
Note: Product cover images may vary from those shown
Adroll
adroll