Modellierung desKreditrisikos im Portfoliofall

The current financial market crisis has impressively demonstrated the importance of aneffective credit risk management for financial institutions. At the same time, the use and thevaluation of credit derivatives has been widely criticised as a result of the crisis. Over the pastdecade, credit derivatives emerged as an important part of credit risk management as theseoffer a broad range of possibilities to reduce credit risk through active credit portfoliomanagement. This has represented a quantum leap in the further development of credit riskmanagement. Credit risk management without using credit derivatives no longer seems to bean appropriate alternative. However, correct valuation of these derivatives is still challenging.The crisis has demonstrated that the issue is less about using credit derivatives than aboutdeveloping valid valuation techniques. A sound understanding of already existing creditpricing models is necessary for such a development. These models are the key focus of thisworking paper.Literature distinguishes between three different kinds of credit pricing models: Asset-Based-Models, Intensity-Based-Models and hybrid models. The primary purpose of credit riskmodelling is to simulate the default of a defaultable asset. Asset-Based-Models try to modelthe default by analyzing changes in value of such an asset: if the value of a defaultable assetfalls below a defined threshold, the asset defaults. While this is economically plausible, themodelling of a default in an Intensity-Based-Model is rather random. It is simply the result ofa stochastic process. While Intensity-Based-Models do not offer any economic rationale forthe default, their results are surprisingly realistic. Hybrid models are a combination of bothkind of models. These try to establish a connection between the economic rationale of theAsset-Based-Models and the empirical validity of the results of the Intensity-Based-Models.While this paper focuses on the valuation techniques in a portfolio case, Frankfurt SchoolWorking Paper No. 126