[PDF] When investing in credit, the question “How do I measure how much PDF PCC08_DDF

The answer might include duration, average credit rating, tracking error A company rated 'A' might Many tail measures calculate a VaR 12(Value at Risk)

BON model is used to calculate each company's overall probability of a payment default event occurring within the next 12 months after the date of the company's

[PDF] GUIDE TO CREDIT RATING ESSENTIALS - Home S&P Global

Ratings are provided by credit rating agencies which specialize in evaluating credit particular organization or in selecting a company that will guarantee the

[PDF] Procedures and Methodologies for Determining Credit - SECgov

1 mai 2015 · Determining Credit Ratings Sept 30, 2015 Egan-Jones Ratings Company, Inc ( “Egan-Jones”) is a credit rating agency established in 1995

[PDF] Rating as a Useful Tool for Credit Risk Measurement - CORE

statements of the selected company and the rating is going to be assigned according to the rating Keywords: rating, credit risk, hard facts, financial analysis

[PDF] The Z-Metrics™ Methodology For Estimating Company Credit - FDIC

To assign our unique Z-Metrics credit rating, given the PD, to each firm years), our model can, and will, calculate one-year PDs as of a particular point in time

[PDF] When investing in credit, the question “How do I measure how much

The answer might include duration, average credit rating, tracking error A company rated 'A' might Many tail measures calculate a VaR 12(Value at Risk)

[PDF] Credit Rating Lab - Bloomberg Professional Services

This function also compares the company's fundamentals with the industry averages and graphs the company's default risk dis- tribution in the industry By

MEASURING CREDIT PORTFOLIO RISK

Dr Leah Kelly, Colonial First State Global Asset Management

Colonial First State Investments

atRisk(VaR) thetrueriskprofileofcreditinvestments. riskandpromotesapushfora welldocumentedandfirmlyestablished. 1

Creditrisk

may repaytheprincipalandinterestwhendue.

Whatisportfoliocreditrisk?

theborrowermightdefaultonits debt,measuredbyacreditrating2 ordefaultprobability 3 .Forstronginvestmentgradeborrowers defaults,runatadifferentlevel donotrunatahigherratethanexpected.

Underlyingcreditrisks;

Defaultcorrelations;and

Exposurepositions(concentrations).

Correlation

4 canoccurinclusters,such asthetelecomequipmentsector 5 inEuropeortheoilandgasindustry 6 defaultswilldirectlyimpactthe losseffectontheportfolio.

Source:Moody's

ofbonds,whereas havehadadefaultrateof20%! themarketvalueofassets casewhereanissuemigrates investmentmaturitymatchestheirinvestment

0.00.20.40.60.81.01.21.4

1970 1975 1980 1985 1990 1995 2000 2005

Averagedefault

rate0.17%pa

Traditionalmeasuresofcreditrisk

Averagecreditrating

ofallthe 7 ;see,forexample,Ranson(2003).Ranson debtportfoliomanagement"isnota averageisameasureofcentral howwrongyoumightbe. 'A+'5,andsoon.Theportfoliocreditratingis 8

CreditRating*10yearcumulativehistorical

defaultprobability

AAA0.60%

AA0.78%

A1.24%

BBB3.63%

BB27.39%

B50.42%

Asaconsequence

outcome betweentheportfoliosissignificant.

Creditduration

9 (forfurtherdetails,seeFabozzi(2005)and basispointsifcreditspreadsweretowiden thesameamount.Toillustratethis,theuseof exactly10basispoints. While

Trackingerror

10 ariskmeasure. tracking futurevolatilityofaportfolio'sexcess returnsbasedonhistoricaltrends. relativetothebenchmark.

Thisapproachhastwomajorflaws:

that atthedistribution.Recallthatanormal

However,themajordeficiency

notcapturethemigrationand riskwithinportfolios.

Bestpracticemeasuresofcreditrisk

Measuringtailrisk

tailrisk 11 includingMonte

Allthesetoolsallowthe

implicationsmustbeunderstood.

ManytailmeasurescalculateaVaR

12 995
howmanyofthe995years wouldwelosecloseto,butlessthan,$x? 13 Take bonds isequivalenttotheexpectedvalue.

Thetablebelowillustratesthescenarios:

10.0370100170

20.0290100190

30.0310070170

40.0210090190

50.9100100200

197.8.

eachscenario:

1 0.03 Ͳ28.91.1Ͳ27.8

0.02 Ͳ8.91.1Ͳ7.8

3 0.031.1Ͳ28.9Ͳ27.8

4 0.021.1Ͳ8.9Ͳ7.8

5 0.91.11.12.2

portfolioisgreaterthanthesumof portfolioisnotrecognisedunderVaR. maintain

Aproposedconsistent

measureoftailrisk(CVaR) 14 ,seeArtzner

VaR.CVaRisameasureofthetail,whichhelpsto

risk.Without thismeasureforthe followingreasons: appropriate.

Ameasureof20%doesmorethan

characteristicsofthedistribution. industryisconsistentinwhat distribution.

Arealexample

AUD2.5billion.

constructedtoreplicate exposureisthelargestholding.

Tracking

Issuers

Exposure

(bps)189

Exposure

(bps)740 4.31

CreditRatingBBB/BBB

Tracking

ExpectedLoss

15 (bps)14 Loss 16 (bps)175 year20%VaR(bps)92 year20%CVaR(bps) riskythanthebenchmark. 17 benchmark. trackingits

[PDF] [PDF] When investing in credit, the question “How do I measure how much

[PDF] Method for assessment of companies credit rating (AJPES SBON

[PDF] GUIDE TO CREDIT RATING ESSENTIALS - Home S&P Global

[PDF] Procedures and Methodologies for Determining Credit - SECgov

[PDF] Rating as a Useful Tool for Credit Risk Measurement - CORE

[PDF] The Z-Metrics™ Methodology For Estimating Company Credit - FDIC

[PDF] When investing in credit, the question “How do I measure how much

[PDF] Credit Rating Lab - Bloomberg Professional Services

MEASURING CREDIT PORTFOLIO RISK

Colonial First State Investments

Creditrisk

Whatisportfoliocreditrisk?

Underlyingcreditrisks;

Defaultcorrelations;and

Exposurepositions(concentrations).

Correlation

Source:Moody's

0.00.20.40.60.81.01.21.4

1970 1975 1980 1985 1990 1995 2000 2005

Averagedefault

Traditionalmeasuresofcreditrisk

Averagecreditrating

CreditRating*10yearcumulativehistorical

AAA0.60%

AA0.78%

A1.24%

BBB3.63%

BB27.39%

B50.42%

Asaconsequence

Creditduration

Trackingerror

Trackingerror

Thisapproachhastwomajorflaws:

However,themajordeficiency

Bestpracticemeasuresofcreditrisk

Measuringtailrisk

Allthesetoolsallowthe

ManytailmeasurescalculateaVaR

Thetablebelowillustratesthescenarios:

10.0370100170

20.0290100190

30.0310070170

40.0210090190

50.9100100200

197.8.

1 0.03 Ͳ28.91.1Ͳ27.8

0.02 Ͳ8.91.1Ͳ7.8

3 0.031.1Ͳ28.9Ͳ27.8

4 0.021.1Ͳ8.9Ͳ7.8

5 0.91.11.12.2

Aproposedconsistent

VaR.CVaRisameasureofthetail,whichhelpsto

Ameasureof20%doesmorethan

Arealexample

AUD2.5billion.

Tracking

Issuers

Exposure

Exposure

CreditRatingBBB/BBB

Tracking

ExpectedLoss

Summaryofriskmeasures

MeasureMeasureincorporates:

Default

Concentration

Extremeevent

Credit

Tracking

VaROOOXX

CVaROOOOO

Conclusion

REFERENCES

Dynkin,L.,

Edition

ENDNOTES

Manyexamplesexist,see:

DimitrisChorafas,"CreditDerivatives&The

Assessment