Studies

Credit Risk Modeling: Lessons from the Crisis

Professor

 

Michael Gordy (Federal Reserve Board)

Dates

 

28 August – 1 September 2017

Hours

 

15:30 to 19:00

Intended for

 

Graduate students, practitioners, and central bankers.

Prerequisites

 

Masters level coursework in fixed income, derivatives, and econometrics.

Overview

 

The decade up to the Financial Crisis witnessed rapid expansion of credit markets and innovation in portfolio credit derivatives. This course introduces the main tools that are used to measure and price corporate credit risk. We begin with an examination of the empirical performance of agency credit ratings and credit scoring models. We next introduce structural and reduced-form models for corporate bonds and single-name credit derivatives. Multi-name extensions of these models are applied to rating and pricing of Collateralized Debt Obligation (CDO) tranches, as well as to portfolio value-at-risk. Finally, we consider the shortcomings of the models as revealed by the Financial Crisis, and the evolution of credit markets in the wake of the Crisis.

Topics

 

Agency ratings and credit scoring models
Structural models of credit risk
Reduced-form (default intensity) models
Single-name credit instruments
Portfolio models and structured products
Lessons of the Financial Crisis

     
 

Michael Gordy is a Principal Economist at the Federal Reserve Board in Washington, DC, and has held visiting appointments at Princeton and at Indian School of Business. He serves as co-Editor-in-Chief of the Journal of Credit Risk, and as an associate editor of the Journal of Banking & Finance and the International Journal of Central Banking. He is a recipient of Risk's 2004 Quant of the Year and GARP's 2003 Financial Risk Manager of the Year awards. Most of his research pertains to modeling credit risk at the single-name and portfolio levels, to the computation and estimation of such models, and to regulatory applications such as minimum capital requirements. Michael received his PhD in economics from MIT in 1994.

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