FRONTIERS IN CREDIT RISK

Credit risk evaluation is as old as commerce itself. Processes have been refined over centuries based on cumulative experience, judgment and learning. The rapid development of financial markets however has tested the limits of the traditional approach as highly publicized credit losses and huge non-performing loans across the globe well document. Distress among many credit professionals and regulators prevails. This book describes a different and unemotional approach to credit risk evaluation. Based on abstract and objective credit models, the concept of credit risk measurement is introduced through a range of theoretical and practical perspectives.
From making a case for credit risk measurement as a complement to the more traditional approaches to credit risk management, the book covers validation, applications and new areas of credit risk management. Contributions by leading academics, practitioners and consultants provide for scholars and credit risk professionals but also less mathematically inclined readers or interested parties, a wide spectrum of ideas and concepts for developing and improving their own viewpoint, processes and approaches. A demo-CD of one particular model is included for practical testing and playing with applied credit risk measurement concepts.

Gordian Gaeta is a director and founder of a range of consulting and advisory firms as well as private equity investment companies in services and light industries redominantly in Europe and Asia. He specializes in developing and implementing analytical solutions for complex strategic issues in financial services and other industries undergoing significant change or being exposed to intricate risk issues.
Justin Hingorani works with Maple Securities (UK) Ltd. in London developing both bespoke structured credit products for clients and Maple’s internal credit research practice. Maple is a global financial services company with headquarters in Toronto and offices in London, Jersey City, Frankfurt, Milan and Amsterdam (maplesecurities.com). Mr. Hingorani was formerly a director of Simplex Credit Advisory in Hong Kong, providing credit risk management technologies and solutions.
Shamez Alibhai works with Barclays Group PLC in London in the Retail Portfolio Management Unit. Mr. Alibhai is responsible for developing credit risk measurement approaches and risk transfer strategies for the groups’ retail portfolio. Prior to joining Barclays, he was a director of Simplex Credit Advisory in Hong Kong, providing credit risk management technologies and solutions.

About the Contributors.
Preface.
Introduction and Overview (Gordian Gaeta).
PART I. THE CASE FOR CREDIT RISK MEASUREMENT AS A NECESSARY BUT NOT SUFFICIENT CONDITION FOR CREDIT RISK MANAGEMENT.
Credit Risk Measurement and Management: The Ironic Challenge in the Next Decade (Edward I. Altman, et al.).
The Changing Nature of Credit Relationships and Banking (Paul S. Serfaty).
Credit Risk Measurement: A Necessary Dimension of Credit Risk Management (Shamez Alibhai, et al.).
The Foresaken Side of Risk Management: Have Deterministic Approaches Gone Too Far? (W. Randall Payant).
PART II. CONCEPTS AND ISSUES OF CREDIT RISK MEASUREMENT.
Building a Credit Risk Valuation Framework for Loan Instruments (Scott D. Aguais, et al.).
Measuring the Unexpected: Events in Credit Risk (Justin Hingorani, et al.).
A Stress Test to Incorporate Correlation Breakdown (Jongwoo Kim and Christopher C. Finger).
Neural Networks for Modeling Volatility and Market Capitalization (Jan-Joost Spanjers and Tom Heskes).
A Co mparison of Stochastic Default Rate Models (Christopher C. Finger).
Complexities and Validation of Default Risk Models (Jorge R. Sobehart).
A Fundamental Credit Model: Review of Preliminary Test Results (James M. Gerard).
PART III. EXTENSION AREAS FOR MEASUREMENT APPROACHES TO CREDIT RISK.
Measuring Default Risk in the US High-Yield Bond Market (Edward I. Altman and Brenda Karlin).
Credit Risk Embedded in Over-the-Counter Derivatives (Eduardo Canabarro).
Internal Corporate Credit Portfolios: The Next Frontier in Credit Risk (Kevin S. Buehler, et al.).
Applying Portfolio Credit Risk Models to Retail Portfolios (Nisso Bucay and Dan Rosen).
The Structuring of Collateralized Loan Obligations: A Risk Perspective (Manfred Plank and Markus Unterhofer).
Worst Loss Forecast in Counterparty Exposure (Sergey Lyalko and Robert J. Tuckett).
Moving Toward Private Company Credit Risk Management (Justin Hingorani, et al.).
Applying a Risk Measurement Model to Opportunity Evaluation (Gordian Gaeta).
Credit Risk Management for Emerging Markets: Lessons from the Asian Crisis (Roman Scott).
The SCA CreditVision Model and demo-CD Explained.
Bibliography.
Index.