Number: 45903
Title: Credit Derivatives
Concentration: Finance
Prerequisites: None
Description: This course provides techniques for modeling credit risk. In the literature there exist two basic frameworks for doing this. The first framework is known as the 'structural approach' and here the key object is the value of the firm's assets. The fundamental idea is that if this value falls below some threshold, the firm defaults. The second framework is known as the 'intensity based' or 'reduced form' approach. This approach models the default time as the first jump time for a counting process and allows this jump time to be influenced by certain background variables. More time will be spent on the latter approach since this framework allows us to use many results from the default-free term-structure theory. Indeed, one main result is that the intensity can be interpreted as a default premium. Reference text: "Credit Risk: Pricing, Measurement, and Management," Duffie, D. and K. Singleton (2003); Princeton University Press. (Rev. 3/08)