This article compares the linkages between credit fundamentals, ratings and value-at-risk measures for CDO tranches with those for corporate bond exposures. A sensitivity analysis incorporating market information and rating migrations data reveals that the behaviour of CDO tranche ratings can...

A model-based assessment of credit risk is subject to both specification and calibration errors. Focusing on a well known credit risk model, we propose a methodology for quantifying the relative importance of alternative sources of such errors and apply this methodology to a large data set. We...

This paper focuses on the asymptotic single-risk-factor (ASRF) model in order to analyze the impact of specification and calibration errors on popular measures of portfolio credit risk. Violations of key assumptions of this model are found to be virtually inconsequential, especially for large,...

In order to analyze the pricing of portfolio credit risk – as revealed by tranche spreads of a popular credit default swap (CDS) index – we extract risk-neutral probabilities of default (PDs) and physical asset return correlations from single-name CDS spreads. The time profile and overall...

This paper develops an empirical procedure for analyzing the impact of model misspecification and calibration errors on measures of portfolio credit risk. When applied to large simulated portfolios with realistic characteristics, this procedure reveals that violations of key assumptions of the...

Equity and credit-default-swap (CDS) markets are in disagreement as to the extent to which asset returns co-move across firms. This suggests market segmentation and casts ambiguity about the asset-return correlations underpinning observed prices of portfolio credit risk. The ambiguity could be...

A structural model with stochastic volatility and jumps implies specific relationships between observed equity returns and credit spreads. This paper explores such effects in the credit default swap (CDS) market. We use a novel approach to identify the realized jumps of individual equities from...

We seek to assess the effect of changes in commercial property prices on bank behaviour and performance in a range of industrialised economies, extending the existing micro literature on bank performance. The results suggest that, consistent with macro-level studies, commercial property prices...

This issue has four excellent articles - Dr. William (“Bill”) M. Isaac, former Chairman of the U.S. Federal Deposit Insurance Corporation, and now a top global banking industry consultant, has submitted a thought-provoking article on lessons learned from the 2008 banking crisis in the U.S....