Spread Risk and Default Intensity Models
About the Lecture
The lecture Spread Risk and Default Intensity Models by Edu Pristine is from the course Archiv - Credit Risk (FRM). It contains the following chapters:
- AIM Statements
- Credit Spread
- Various Spread Measrues
- 2 Spread
- Modeling of Default using Bernoulli Trial
- Exponental & Poisson Distribution
- Hazard Rate
- CDS Curve & Default Distribution
- Spread Risk
Author of lecture Spread Risk and Default Intensity Models
Edu Pristine
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Excerpts from the accompanying material
... compute the Spread '01. Explain how default risk for a single company can be modelled as a Bernoulli trial. Explain the relationship between exponential and Poisson distributions. Define the hazard rate and use it to define probability functions for default time and conditional default probabilities. Calculate risk ...
... a treasury bond). To calculate the credit spread, the two bonds should be of the same ...
... a risky bond and yield to maturity of a benchmark government bond. i spread – Difference between the yield to maturity of a risky bond and ...
... 3.75%, Calculate Yield Spread, Risky Bond, Treasury Bond, Coupon Rate 5% semiannual, 3.5% semiannual, Time to maturity 15 years ...
... of the bond is $92. The face value of bond is $100. Time to maturity ...
... -spread. Usually, z -spread is increased and decreased by 0.5 basis points respectively and the difference in prices is calculated. This difference is known as DVCS. Smaller ...
... two outcomes – success or failure (Binomial Distribution). This concept can be extended to the firm whether it does default or it does not default during a ...
... rate at which it will take an event to occur. Hazard rate is the rate at which the default will arrive. Poisson distribution measures the number of success per unit, which is given by ?. The equation ...
... of default over the next small interval, dt , is equal to ?dt. If the time to default event is denoted ...
... compute the one, two, three and four year ...
... hazard rates can be calculated from spreads. The risk neutral hazard rate is given by ...
... start up and is into the business of online retail. The credit analyst projects a 20% ...
... The first advantage of using CDS spread in estimating hazard rates is that CDS spreads are more readily available. ...
... will not be true in practice. Hazard rates are calculated at every instance of time. So CDS data will provide only few ...
... implies that the probability of default in near term is same as the probability of default in long term. Spread may be ...
... by two methods - mark to market of spread risk and spread volatility can be used. In the mark to market method, entire CDS curve is moved up and down by 0.5 basis ...
