Tobias BärPredicting and Hedging Credit Portfolio Risk with Macroeconomic Factors

About this book deutschenglish

With the advent of the new Basel Capital Accord ("Basel II"), banks all over the world focus on credit risk modeling. "Predicting and Hedging Credit Portfolio Risk with Macroeconomic Factors" presents new research findings about the macroeconomic causes of credit risk, and discusses the application of these findings to the modeling and managing of credit risk. With its mix of theoretical and empirical research and practical implementation concepts, the book targets academics as well as practitioners in banks and insurance companies.

One important finding presented by the book is the domino effect of business failures ("default contagion") as a major driver of default rates. Based on this insight, the book develops a macroeconomic forecast model for default rates, which can be applied to the pricing and provisioning of credit risk; the model also incorporates factors such as interest rates, inflation, and business climate. As typically only very short time series of default rates are available for empirical research, a special "funnel" approach to model specification is developed and demonstrated with a sample data-set.

The book also discusses how some well-known credit portfolio risk models such as CreditMetrics® and CreditRisk+® stand in contradiction to the macroeconomic conditionality of default rates. Finally the book presents a concept for a hedge of credit portfolio risk that is based on derivatives on macroeconomic factors.

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