Sumários
Revision Q&A Session (Optional)
30 Junho 2025, 18:30 • Andrea Sofia Meireles Rodrigues
Revision Q&A session (optional) for final exam preparation.
Lessons 7 and 8
20 Junho 2025, 17:30 • Andrea Sofia Meireles Rodrigues
Chapter 7: First passage time models. Example.
Chapter 8: The CreditGrades™ approach. Introduction. Set-up: firm's asset dynamics and default. Survival probability: approximated and exact. Calibration. Case study 2.2 (cont.)
Chapter 9: Credit derivatives. Underlying assets. Credit events. Market. Classification.
Chapter 10: Credit default swaps (CDS). Introduction and market. Premium leg and protection leg. Settlement: physical and cash. Example 10.1. CDS spread. Case study 4.1.4. CDS spread in the CreditGrades™ model. Case study 2.2 (concl.)
Chapter 11: The Jump-to-Default Extended CEV model. Introduction. Set-up. Pre-default stock price. Default: diffusion to zero or jump to default. Defaultable stock price. Jump-to-default extended CEV (JDCEV) model: volatility and default intensity. Survival probability. Unified valuation: defaultable bond price, European call option price, and European put option price. Credit spread and short-term spread. CEV model.
Lessons 5 and 6
12 Junho 2025, 17:30 • Andrea Sofia Meireles Rodrigues
Chapter 4: Structural models of credit risk. Subordinated debt: example. Parameter estimation. Discretisation. Case study (portfolio consulting case study). Shortcomings and extensions.
Chapter 5: Moody's KMV approach. Introduction. Default probability: main elements, 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 and 2.1.
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.
Lessons 3 and 4
6 Junho 2025, 17:30 • Andrea Sofia Meireles Rodrigues
Chapter 3: Corporate liabilities as contingent claims. Equity and debt valuation: PDE approach and probabilistic approach. 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. Recovery rate upon default and implied conditional expected recovery given default. Subordinated debt: payoffs at maturity, and equity and debt (senior and junior) valuation.
Lessons 1 and 2
30 Maio 2025, 17:30 • Andrea Sofia Meireles Rodrigues
Introduction: contact details, learning objectives, syllabus, timetable and lesson plan, assessment, bibliography, and Moodle.
Chapter 1: Foundations for credit risk modelling. Credit risk, outcomes of a default, terminology and notation (default time, default indicator process, exposure at default, loss given default, recovery rate, default loss, probability of default, expected loss), portfolio loss, credit ratings. Example 1.1, case study 4.1 (questions 1, 5, and 6), and other examples.
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. Structural approach, set up, assumptions, payoffs at maturity.