The field of
credit risk measurement is experiencing sweeping changes and not a little
controversy. Into the storm wade authors de Servigny and Renault with their own
perspective. Focusing on risk management (as opposed to financial engineering)
applications, they provide a roadmap for banks to manage credit risk under the
new Basle II regime. Topics include
individual
counterparty credit risk,
portfolio
credit risk,
capital
allocation,
credit
spread modeling,
CDOs
and credit derivatives, and
regulation.
Today, traditional
methods off credit analysis are under attack by proponents of financial
engineering oriented structural and intensity models of credit risk. This book
is somewhat of a backlash. The authors are employees of Standard & Poor's. Not
surprisingly, they embrace agency ratings as a gold standard to which internal
bank ratings, credit scoring and structural models can only aspire. Intensity
models receive minimal mention. This bias should not dissuade you. Any book you
read on credit risk today is going to offer its own perspective. Indeed, de
Servigny and Renault is one of the few books you will find today offering a
spirited defense of traditional credit analysis. I do advise supplementing it
with another biased book: Ong (2003)
offers a somewhat scathing look at credit rating agencies.
Contents
1. Credit, Financial Markets, and
Microeconomics
2. External and Internal
Ratings
3. Default Risk: Quantitative
Methodologies
4. Loss Given Default
5. Default Dependencies
6. Credit Risk
Portfolio Models
7. Credit Risk
Management and Strategic Capital Allocation
8. Yield Spreads
9. Structured Products
and Credit Derivatives
10. Regulation
Epilogue
Notes
A lot of
mathematical tools, such as goodness-of-fit tests, copulas and kernel
modeling are covered, but discussions remain accessible to less technical
readers. If anything, the book trades depth for breadth, so more technically
inclined readers will find the book most useful as an overview. Plan on
following up on some of the many interesting references that appear throughout
the book. I am going to!
In summary, this
book offers a broad overview of credit risk modeling primarily from the
perspective of bank risk management. The authors favor traditional credit
analysis over financial engineering approaches to credit risk measurement. This
should not be the only book you read on the topic, but do read it.
individual
counterparty credit risk,