Sumários

Chapters 4 (Cont.), 5, 6, and 7

5 Junho 2026, 17:30 • Andrea Meireles

Chapter 4: Structural models of credit risk. Subordinated debt: example. Discretisation. Case study (portfolio consulting case study). Shortcomings and extensions.

Chapter 5: Moody's KMV approach. Introduction. Default probability: main elements and steps. Asset value and volatility: estimation (non-linear system of equations and iterative approaches). Default point and distance to default (DD). Expected default frequency (EDF). Merton vs. Moody's KMV. Case studies 2.2, 2.1, and 2.3.

Chapter 6: Hitting times. Brownian motion. Running maximum and minimum. First hitting times. Reflection principle. Laws: joint distribution and density of (drifted) Brownian motion and its running maximum/minimum and hitting times.

Chapter 7: First passage time models. Black-Cox model: set-up (firm's asset dynamics and default barrier), default time, probability of survival/default, valuation of defaultable bond.

Chapters 3 (Cont.) & 4

29 Maio 2026, 17:30 • Andrea Meireles

Chapter 3: Corporate liabilities as contingent claims. Examples 3.1 and 3.2. Hedging of a corporate bond. The Greeks and comparative statics (equity and debt). Case study 4.1. Dividends.

Chapter 4: Structural models of credit risk. Promised yield and credit spread, comparative statics and leverage. Bond's risk: elasticity and volatility. Default time and default probability. Case study 1.2. Recovery rate upon default and implied conditional expected recovery given default. Case study 1.1 (parts 1–6). Subordinated debt: payoffs at maturity, equity and debt (senior and junior) valuation, and example. Parameter estimation. Discretisation.

Introduction & Chapters 1, 2, 3

22 Maio 2026, 17:30 • Andrea Meireles

Introduction: Contact details, learning objectives, syllabus, timetable and planning, assessment, bibliography, Moodle, and code of conduct.

Chapter 1: Foundations for credit risk modelling. Default risk and credit risk, outcomes of a default, terminology and notation (default time, default indicator process, exposure at default [EAD], loss given default [LGD], recovery rate, default loss, probability of default, expected loss), portfolio loss, unexpected loss, credit ratings. Example 1.1, case study 4.1 (questions 1, 5, and 6), and other examples (slides 17 and 21).

Chapter 2: Credit scoring models. Introduction, set up, methodology, type-I and type-II errors, univariate discriminant analysis, multiple discriminant analysis (MDA), Altman Z-score, linear probability model, logit model, and probit model. Example and case study 3.1.

Chapter 3: Corporate liabilities as contingent claims. Introduction, structural approach, set up, assumptions, payoffs at maturity, equity and debt valuation (PDE approach and probabilistic approach). Example 3.1.