AU kursuskatalog arkiv

5312: Credit Risk Modelling ( efterår 2011 - 5 ECTS )

Rammer for udbud

• Uddannelsessprog: engelsk
• Niveau: Elective MSc/IMSQE course
• Semester/kvarter: Fall 2011, 2. quarter/second half of semester
• Timer per uge: 2x2 hours of lectures a week for 5½ weeks, supplemented by a limited amount of project work during the semester. This is equivalent to 24 lectures. Timetables can be found at: http://econ.au.dk/studies/teaching-and-examination/teaching/timetables/
• Deltagerbegrænsning: None
• Undervisningssted: Århus
• Hovedområde: Det Samfundsvidenskabelige Fakultet
• Udbud ID: 34048

Formål

On successful completion of the course, the students are able to:

• Explain and analyze the structural and intensity based approaches for credit risk.
• Describe and analyze how credit risk affects the valuation of bonds.
• Describe the payoffs, the practical applications, and the pricing of selected credit derivatives.
• Apply relevant models for the pricing of selected credit derivatives.
• Describe and analyze the importance of default correlation.

Indhold

For financial contracts in practise there is a chance that either counterparty will default on (part of) the required payments. This course provides techniques for modelling and analysing the credit risk in such contracts. Two modelling frameworks of credit risk are considered, namely the "structural approach" and the "intensity based approach". The structural approach models a fundamental object of the firm (e.g. firm value or EBIT) and default is triggered either exogenously (e.g. due to bond covenants) or endogenously (when equity value drops to zero). In this setting corporate securities (stocks, bonds,
etc.) can be viewed as derivatives of the fundamental and, hence, option-pricing techniques can be applied to value them and study the default risk inherent in them. On the other hand the intensity based approach takes a reduced form view and models the intensity at which default(s) occur. It turns out that pricing in this setting essentially corresponds to risk-adjusting the risk-free interest rate which allows us to use many results from the default-free term structure theory developed in the course "Fixed Income Modelling". The credit risk models are used to investigate key objects such as the credit spread, default correlation, and the pricing of defaultable fixed income securities, e.g. corporate bonds, credit default swaps, and credit default obligations.

 Course subject areas:

• Structural models of credit risk
• Intensity models of credit risk
• Credit derivatives 
• Default correlation

Faglige forudsætninger

4088: Derivatives and Risk Management
5311: Fixed Income Modelling

Underviser

Simon Lysbjerg Hansen

Undervisnings- og arbejdsform

Lectures with in-class discussions

English

Litteratur

Lando, David: "Credit Risk Modeling: Theory and Applications", Princeton University Press, 2004.

Bedømmelse

• Mundtlig, bedømt efter 7-skala med intern censur
5 xxxxx

Form of assessment: Oral exam (20 mins. exam with 20 mins. for preparation)

Examination requirements: Before taking the exam the student has to pass an assignment. The assignment is only offered in the term the course is being taught. The assignment is to be solved in a group of two students unless the lecturer explicitly grants an exemption. The assignment is evaluated internally on a pass/fail basis. The purpose of the assignment is to test the student in learning objectives less suited for oral examination. The oral exam tests the student's ability to meet the learning objectives by random check.

Examination aids allowed: All - except for any means of electronic communication, including calculators, mobile phones and PCs.

Students who wish to sit for the exam in both '5311: Fixed Income Modelling' & '5312: Credit Risk Modelling' must sign up for the 10 ECTS exam in '5310: Fixed Income and Credit Risk Modelling'.