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CHAPTER 6- CREDIT RISK - Coggle Diagram
CHAPTER 6- CREDIT RISK
10.2 Structural Models
10.2.1 KMV-Merton Approach
Equity = call option on assets.
Default only at maturity.
Measures:
Distance to Default
Probability of Default
Used in Moody’s KMV (EDF).
10.2.2 First Passage Models
Default can happen anytime.
Uses barrier (threshold) concept.
More flexible than Merton (allows covenants, etc.).
10.2.3 CreditMetrics™
By J.P. Morgan.
Uses credit ratings, VaR, and correlations.
Simulates portfolio changes using rating transitions.
10.3 Reduced-Form Models
10.3.1 Jarrow–Turnbull Model
More realistic than Jarrow–Turnbull.
Allows recovery at default time.
10.3.2 Duffie–Singleton Model
More realistic than Jarrow–Turnbull.
Allows recovery at default time.
10.3.3 CreditRisk+™
focus: Frequency of defaults (not cause).
Uses Poisson + portfolio loss distribution.
By Credit Suisse.