Credit Risk Tools: An Overview
Source: Munich Personal Repec Archive
This paper presents several Credit Risk tools which have been developed for the Credit Derivatives Risk Management. The models used in this context are suitable for the pricing, sensitivity/scenario analysis and the derivation of risk measures for plain vanilla Credit Default Swaps (CDS), standardized and bespoke Collateralized Debt Obligations (CDO) and, in general, for any credit risk exposed A/L portfolio. In this paper the authors compute the market implied Probability of Default (PD) from market spreads and the theoretical CDS spreads from historical default frequencies.