Managing Credit Risk: The Great Challenge for the Global Financial Markets, Second Edition -- Contents -- About the Authors -- Introduction -- TOP 10 CHANGES IN THE CREDIT MARKETS IN THE LAST DECADE -- EVOLUTION OF CREDIT RISK IN THE ECONOMY -- A NASCENT SCIENCE OF CREDIT RISK MANAGEMENT -- INNOVATIVE PRODUCTS AND STRUCTURES -- CREDIT RISK IS LIKE MILK -- THE GLOBAL RATE OF CHANGE IS TRULY UNPRECENDENTED -- REFERENCES -- Chapter 1: Credit Risk -- CHANGING ATTITUDES TOWARD CREDIT -- MORE NATIONS BORROW -- MORE LEVERAGE, MORE OPPORTUNITY, AND MORE RISK -- THE GOLDEN AGE OF BANKING -- CREDIT RISK PRICING IS NOW MARKET-DRIVEN -- CREDIT MANAGEMENT IS IMPORTANT TO THE GLOBAL ECONOMY -- NEW TRANSACTIONS, NEW RISKS -- NEW LENDERS -- NEW APPROACHES TO CREDIT RISK -- TECHNOLOGY TO THE RESCUE -- REFERENCES -- Chapter 2: Credit Culture -- A MODERN RISK MANAGEMENT FRAMEWORK -- CREDIT CULTURE AT WORK -- GOLDMAN SACHS: MANAGING THROUGH CREDIT CULTURE -- JPMORGAN: MOLDING A NEW CULTURE FROM A GRAND AND VARIED TRADITION -- WHAT MAKES CREDIT CULTURE WORK? -- REFERENCES -- Chapter 3: Classic Industry Players -- BANKS AND SAVINGS INSTITUTIONS -- COMPETITION, CONCENTRATION, AND CHANGE -- SOME LESSONS WERE LEARNED -- LIQUIDITY: A RESOURCE UNIQUE TO BANKS -- INSURANCE COMPANIES -- FINANCE COMPANIES -- SPECIAL PURPOSE ENTITIES -- REFERENCES -- Chapter 4: The Portfolio Managers -- FIXED INCOME PORTFOLIO STRATEGY -- HEDGE FUNDS -- REFERENCES -- Chapter 5: Structural Hubs -- EXCHANGES -- CLEARINGHOUSES -- NETTING, COLLATERAL, AND DOWNGRADE TRIGGERS -- CREDIT DERIVATIVE PRODUCT COMPANIES -- LIMITATIONS OF STRUCTURAL HUBS -- REFERENCES -- Chapter 6: The Rating Agencies -- AGENCIES AROUND THE WORLD -- GROWTH IN ISSUES RATED -- THE RATING PROCESS -- RATINGS PERFORMANCE -- RATINGS AND REGULATORS -- EMERGING TRENDS -- REFERENCES -- Chapter 7: Classic Credit Analysis.

CREDIT ANALYSIS AS AN EXPERT SYSTEM -- SHIFTING EMPHASIS FROM THE BALANCE SHEET TO CASH FLOW -- CREDIT ANALYSIS: GOD IS IN THE DETAILS -- FINANCIAL RATIOS: FOOTPRINTS IN THE SAND -- INDUSTRY ANALYSIS FOR TERM LENDING -- CLASSIC CREDIT FOUNDATIONS REMAIN BUT BANKING PRACTICES HAVE MOVED AHEAD -- YOU CAN HAVE YOUR CAKE BUT ONLY A SLICE OF IT -- REFERENCES -- Chapter 8: Asset-Based Lending and Lease Finance -- MANAGING THE RISKS -- GROWING RESPECTABILITY -- ALTERNATIVES TO ASSET-BASED LENDING -- LEASE FINANCE -- THE ROOTS OF SECURITIZATION AND LBOs -- FAVORABLE RESULTS -- REFERENCES -- Chapter 9: Introduction to Credit Risk Models -- MODELS-WHO NEEDS THEM? -- VARIETY IN MODELS -- RELEVANCE OF CREDIT MODELS TO THE DECISION MAKER -- PORTFOLIO MANAGEMENT MODELS -- COMING ATTRACTIONS -- REFERENCES -- Chapter 10: Credit Risk Models Based upon Accounting Data and Market Values -- HUMAN EXPERT SYSTEMS AND SUBJECTIVE ANALYSIS -- ACCOUNTING-BASED CREDIT SCORING SYSTEMS -- FROM UNIVARIATE TO MULTIVARIATE METHODS -- ALTMAN'S Z-SCORE MODEL (1968) -- Z-SCORES AND BOND RATINGS -- PRIVATE FIRM Z SCORE MODEL -- NONMANUFACTURERS Z SCORE MODEL -- EMERGING MARKET SCORING MODEL AND PROCESS -- ZETA CREDIT RISK MODEL -- CLASSIFICATION ACCURACY -- GROUP PRIOR PROBABILITIES, ERROR COSTS, AND MODEL EFFICIENCY -- ADJUSTMENTS TO THE CUTOFF SCORE AND PRACTICAL APPLICATIONS -- STABILITY OF THE RATIOS IN ZETA -- REESTIMATION OF COEFFICIENTS -- ALTMAN AND SABATO SME MODEL -- RISKCALC MODEL BY MOODY'S KMV -- STANDARD & POOR'S CREDITMODEL (2003) -- BONDSCORE MODEL -- DEPLOYMENT OF Z-SCORE, ZETA, RISSCCALC, CREDITMODEL, CREDIT RISK TRACKER, AND BONDSCORE MODELS -- LIMITATIONS OF MULTIVARIATE MODELS -- NEURAL NETWORKS -- EXPERT SYSTEMS -- MODELS BASED ON MARKET RISK PREMIUMS -- MORTALITY MODELS -- REFERENCES -- Chapter 11: Corporate Credit Risk Models Based on Stock Price.

PREDECESSORS OF OPTIONS THEORY -- OPTION PRICING -- EQUITY IS A CALL OPTION -- DEBT IS LIKE SELLING A PUT OPTION -- THE EDF MODEL -- PRIVATE COMPANY KMV MODEL -- KMV AND OTHER APPROACHES -- PREDICTIVE ABILITY OF DEFAULT MODELS -- DEFAULT PREDICTION RESULTS FOR THE KMV MODEL -- APPLICATIONS -- USE OF EDF IN ASSET VALUATION: STRUCTURAL MODELS AND REDUCED FORM MODELS -- REFINEMENTS TO THE KMV EDF MODEL (1995-2006) -- CONCLUDING REMARKS -- REFERENCES -- Chapter 12: Consumer Finance Models -- CREDIT SCREENING MODELS -- DESIGN OF CREDIT SCORING MODELS -- TESTS FOR MODEL ADEQUACY -- OUT-OF-SAMPLE TESTING -- ADVANTAGES AND DISADVANTAGES -- DYNAMIC CREDIT RISK MANAGEMENT SYSTEMS -- DECISION TREE MODELS -- NEURAL NETWORK MODELS -- CREDIT SCORING MODELS FOR BUILDING MARKET SHARE -- THE NEXT STEPS -- REFERENCES -- Chapter 13: Credit Models for Small Business, Real Estate, and Financial Institutions -- SMALL BUSINESS MODELS -- RESIDENTIAL REAL ESTATE MODELS -- COMMERCIAL REAL ESTATE MODELS -- BANK MODELS -- EXCEPTION VIA CRITICAL RATIOS: OUTLIER/PEER GROUP -- MULTIVARIATE OR COMPOSITE MEASUREMENTS -- MARKET VALUE-BASED MEASUREMENTS -- REFERENCES -- Chapter 14: Testing and Implementation of Credit Risk Models -- AN INTRINSIC VALUE APPROACH -- INGREDIENTS OF AN EFFECTIVE SYSTEM -- WORK-IN-PROGRESS ISSUES IN CREDIT RISK MODELING -- REFERENCES -- Chapter 15: About Corporate Default Rates -- HIGH-YIELD BOND DEFAULT RATES -- MORTALITY AND CUMULATIVE DEFAULT RATES -- COMPARING CUMULATIVE DEFAULT RATES -- AGE OF DEFAULTS -- FALLEN ANGEL DEFAULTS -- INDUSTRY DEFAULTS -- FORECASTING DEFAULT RATES -- ISSUER-BASED DEFAULT RATE FORECASTS -- THE MORTALITY DOLLAR-BASED RATE APPROACH -- A FINAL NOTE ON FORECASTED DEFAULT RATES -- LEVERAGE LOAN DEFAULT RATES -- STRUCTURED FINANCE DEFAULT RATES -- REFERENCES.

Chapter 16: Default Recovery Rates and LGD in Credit Risk Modeling and Practice -- INTRODUCTION -- FIRST GENERATION STRUCTURAL-FORM MODELS: THE MERTON APPROACH -- SECOND GENERATION STRUCTURAL-FORM MODELS -- REDUCED-FORM MODELS -- CREDIT VALUE-AT-RISK MODELS -- RECENT CONTRIBUTIONS ON THE PD-RR RELATIONSHIP AND THEIR IMPACT -- CORRELATION RESULTS' IMPACT AND DOWNTURN LGD -- SOME FINAL REFERENCES -- RECOVERY RATINGS -- RECOVERY RATES AND PROCYCLICALITY -- FURTHER EMPIRICAL EVIDENCE -- CONCLUDING REMARKS -- REFERENCES -- Chapter 17: Credit Risk Migration -- METHODS FOR TRACKING RATING MIGRATION -- THE TIMELINESS AND ACCURACY OF RATING CHANGES -- RATING MIGRATION RESULTS COMPARED -- IMPACT ON RESULTS -- CREDIT RISK MIGRATION AND LOAN LOSSES -- FUTURE DIRECTIONS -- REFERENCES -- Chapter 18: Introduction to Portfolio Approaches -- DIVERSIFICATION IS GOOD, OTHER THINGS BEING EQUAL -- A NUMBER OF SMALL BETS VERSUS A SINGLE LARGE BET -- ISSUES IN IMPLEMENTING THE STANDARD PORTFOLIO APPROACH TO CREDIT PORTFOLIOS -- DISTRIBUTION OF RETURNS -- HOLDING PERIOD -- ABSENCE OF PRICE DISCOVERY -- LACK OF GOOD DATA -- SOLUTION FOR THE CORRELATION MATRIX -- CURRENT PORTFOLIO APPROACHES -- EXPECTED VERSUS UNEXPECTED LOSSES -- OPTIMIZATION OF CAPITAL USAGE -- VARYING OBJECTIVES -- REFERENCES -- Chapter 19: Economic Capital and Capital Allocation -- USE OF THE PRICING MECHANISM -- INNOVATIONS BY BANKERS TRUST IN CAPITAL ALLOCATION -- VALUE AT RISK -- ECONOMIC CAPITAL AND REGULATORY CAPITAL -- ESTIMATION AND OPTIMIZATION OF ECONOMIC CAPITAL -- REFERENCES -- Chapter 20: Application of Portfolio Approaches -- MKMV'S PORTFOLIO MANAGER -- OPTIMAL PORTFOLIO AND THE EFFICIENT FRONTIER -- RISK-NEUTRAL PRICING FOR CREDIT VALUATION -- FACTORS DRIVING ASSET VALUE -- CREDITMETRICS (1997) -- TREATMENT OF DEFAULT CORRELATION -- CREDITMETRICS IMPLEMENTATION-CREDITMANAGER.

COMMENTS ON CREDITMETRICS -- CREDITRISK+ (1996) -- MCKINSEY & CO./WILSON MODEL (1997) -- KAMAKURA CORPORATION'S DEFAULT AND PROBABILITY MODELS -- ALTMAN'S (1997) OPTIMIZATION APPROACH -- PORTFOLIO RISK AND EFFICIENT FRONTIERS USING UNEXPECTED LOSS -- PORTFOLIO RISK USING UNEXPECTED LOSSES -- EMPIRICAL RESULTS OF ALTMAN'S ALTERNATIVE APPROACH -- BANK REGULATIONS (BIS II) AND PORTFOLIO MODELING -- THE FUTURE OF CREDIT PORTFOLIO TECHNIQUES -- REFERENCES -- Chapter 21: Credit Derivatives -- CREDIT DERIVATIVES: AN EXAMPLE -- STRUCTURAL FORMS OF CREDIT DERIVATIVES -- FEATURES OF CREDIT DERIVATIVES USEFUL TO A RISK SELLER -- FEATURES OF CREDIT DERIVATIVES USEFUL TO A RISK BUYER -- POSSIBLE APPLICATIONS OF CREDIT DERIVATIVES -- NOT EVERYTHING IS GOOD ABOUT CREDIT DERIVATIVES -- THE REGULATORY VIEW OF CREDIT DERIVATIVES -- CREDIT RISK OF CREDIT DERIVATIVES -- VALUATION OF CREDIT DERIVATIVES -- CURRENT PRICING PRACTICE -- REFERENCES -- Chapter 22: Counterparty Risk -- DERIVATIVE LOSSES -- THE ROLE OF COUNTERPARTY CREDIT RISK -- DERIVATIVE EXPOSURE -- INTEREST RATE SWAPS -- CALCULATION OF EXPOSURE AND EXPECTED LOSS -- CURRENCY SWAPS -- MANAGEMENT OF DERIVATIVE CREDIT RISK -- MASTER NETTING AGREEMENTS -- STRUCTURED FINANCE SOLUTIONS TO DERIVATIVE CREDIT RISK -- EVALUATING THE CURRENT METHODS FOR ASSESSING DERIVATIVE CREDIT RISK -- COMBINING CREDIT AND MARKET RISK -- REFERENCES -- Chapter 23: Country Risk Models -- HISTORICAL CONTEXT -- FUNDAMENTAL ANALYSIS: KEY RATIOS -- COUNTRY RATING SYSTEMS -- CHALLENGES IN ASSESSING COUNTRY RISK -- IN EVERY CLOUD A SILVER LINING -- COUNTRY RISK MANAGEMENT -- REFERENCES -- Chapter 24: Structured Finance -- USES OF SECURITIZATION -- BENEFITS FOR ISSUERS -- SECURITIZING MORTGAGES -- SECURITIZING OTHER ASSETS -- SEGMENTATION OF RISK -- FINANCING RISKY CREDITS -- THE ANATOMY OF AN ASSET-BACKED SECURITY.

EVALUATING ASSET-BACKED SECURITIES.