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AuthorAmmann, Manuel. author
TitleCredit Risk Valuation [electronic resource] : Methods, Models, and Applications / by Manuel Ammann
ImprintBerlin, Heidelberg : Springer Berlin Heidelberg : Imprint: Springer, 2001
Edition Second Edition
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Descript X, 255 p. online resource


Credit risk is an important consideration in most financial transactions. As for any other risk, the risk taker requires compensation for the undiversifiable part of the risk taken. In bond markets, for example, riskier issues have to promise a higher yield to attract investors. But how much higher a yield? Using methods from contingent claims analysis, credit risk valuation models attempt to put a price on credit risk. This monograph gives an overview of the current methods for the valuยญ ation of credit risk and considers several applications of credit risk models in the context of derivative pricing. In particular, credit risk models are inยญ corporated into the pricing of derivative contracts that are subject to credit risk. Credit risk can affect prices of derivatives in a variety of ways. First, financial derivatives can be subject to counterparty default risk. Second, a derivative can be written on a security which is subject to credit risk, such as a corporate bond. Third, the credit risk itself can be the underlying variยญ able of a derivative instrument. In this case, the instrument is called a credit derivative. Fourth, credit derivatives may themselves be exposed to counterยญ party risk. This text addresses all of those valuation problems but focuses on counterparty risk. The book is divided into six chapters and an appendix. Chapter 1 gives a brief introduction into credit risk and motivates the use of credit risk models in contingent claims pricing


1. Introduction -- 2. Contingent Claim Valuation -- 3. Credit Risk Models -- 4. A Firm Value Pricing Model for Derivatives with Counterparty Default Risk -- 5. A Hybrid Pricing Model for Contingent Claims with Credit Risk -- 6. Pricing Credit Derivatives -- 7. Conclusion -- A. Useful Tools from Martingale Theory -- A.1 Probabilistic Foundations -- A.2 Process Classes -- A.3 Martingales -- A.4 Brownian Motion -- A.5 Stochastic Integration -- A.6 Change of Measure -- References -- List of Figures -- List of Tables

Finance Economics Mathematical Finance Finance general Quantitative Finance


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