CreditRisk+ in the Banking Industry

375 Pages·2004·14.846 MB·English

by  Volker Matthias Gundlach, Frank Berthold Lehrbass (auth.), Matthias Gundlach, Frank Lehrbass (eds.)

Springer Finance
Editorial Board
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G. Barone-Adesi
M. Broadie
M.H.A. Davis
E. Derman
C. Kliippelberg
E.Kopp
W. Schachermayer
Springer-Verlag Berlin Heidelberg GmbH
Springer Finance
Springer Finance is a programme of books aimed at students, academics
and practitioners working on increasingly technical approaches to the
analysis of financial markets. It aims to cover a variety of topics, not only
mathematical finance but foreign exchanges, term structure, risk
management, portfolio theory, equity derivatives, and financial economics.
M. Ammann, Credit Risk Valuation: Methods, Models, and Application (2.001)
E. Barucci, Financial Markets Theory. Equilibrium, Efficiency and Information (2.002.)
T.R. Bielecki and M. Rutkowski, Credit Risk: Modeling, Valuation and Hedging (2.001)
N.H. Bingham and R. Kiesel, Risk-Neutral Valuation: Pricing and Hedging of Financial
Derivatives (1998, md ed. 2.004)
D. Brigo and R Mercurio, Interest Rate Models: Theory and Practice (2.001)
R. Buff, Uncertain Volatility Models-Theory and Application (2.002.)
R.A. Dana and M. ]eanblanc, Financial Markets in Continuous Time (2.002.)
G. Deboeck and T. Kohonen (Editors), Visual Explorations in Finance with
Self-Organizing Maps (1998)
R.J. Elliott and P.E. Kopp, Mathematics of Financial Markets (1999)
H. Geman, D. Madan, S.R. Pliska and T. Vorst (Editors), Mathematical Finance
Bachelier Congress 2.000 (2.001)
M. Gundlach, R Lehrbass (Editors), CreditRisk+ in the Banking Industry (2.004)
B. P. Kellerhals, Asset Pricing (2.004)
Y.-K. Kwok, Mathematical Models of Financial Derivatives (1998)
M. Killpmann, Irrational Exuberance Reconsidered (2.004)
P. Malliavin and A. Thalmaier, Stochastic Calculus of Variations in Mathematical
Finance (2.004)
A. Pelsser, Efficient Methods for Valuing Interest Rate Derivatives (2.ooo)
].-L. Prigent, Weak Convergence of Financial Markets (2.003)
B. Schmid, Credit Risk Pricing Models (2.004)
S.E. Shreve, Stochastic Calculus for Finance I (2.004)
S.E. Shreve, Stochastic Calculus for Finance II (2.004)
M. Yor, Exponential Functionals of Brownian Motion and Related Processes (2.001)
R. Zagst, Interest-Rate Management (2.002.)
Y.-1. Zhu, X. Wu et al., Derivative Securities and Difference Methods (2.004)
A. Ziegler, Incomple Information _and Heterogeneous Beliefs in Continous-time
Finance (2.003)
A. Ziegler, A Game Theory Analysis of Options (2.004)
Matthias Gundlach
Frank Lehrbass (Eds.)
CreditRisk+
in the Banking
Industry
~
Springer
Matthias Gundlach
Aareal Bank AG
Konzerncontrolling Kreditrisiko
Paulinenstra6e 15
65189 Wiesbaden
Germany
e-mail: [email protected]
Frank Lehrbass
Deutsche Genossenschafts
Hypothekenbank AG
Portfolio Management
& Structured Investments
Credit Treasury
Rosenstra6e 2
20095 Hamburg
Germany
e-mail: [email protected]
Mathematics Subject Classification (2ooo ): 91B2B,91B3o, 6o-o8, 6oE99
JEL Classification: Cs, Gu. Gn
CreditRisk+ TM is a service mark owned by Credit Suisse Group and is registered in numerous
jurisdictions
Ubrary of Congress Control Number: 2004104244
ISBN 978-3-642-05854-7 ISBN 978-3-662-06427-6 (eBook)
DOI 10.1007/978-3-662-06427-6
This work is subject to copyright All rights are reserved, whether the whole or part of the material
is concerned, specifically the rights of translation, reprinting. reuse of illustrations, recitation,
broadcasting. reproduction on microfilm or in any other way, and storage in data banks.
Duplication of this publication or parts thereof is permitted only under the provisions of the
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prosecution under the German Copyright Law.
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@ Springer-Verlag Berlin Heidelberg 2004
Originally published by Springer-Verlag Berlin Heidelberg New York in 2004
Softcover reprint of the hardcover 1st edition 2004
The use of general descriptive names, registered names, trademarks, etc. in this publication does
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Preface
The object of this book is to offer an overview of and describe new develop
ments in the credit risk model CreditRisk+. In the selection of topics and in
its organization, the book addresses both experts and practitioners, as well as
anyone looking for an introduction to the subject.
We are happy to present a book that can be seen as the product of a
community. This community has arisen over the past six years out of the desire
to develop and perfect a credit risk model that is regarded by its supporters
as the most promising and the most elegant of the current models.
Such a community would not have been possible without Tom Wilde and
Credit Suisse Financial Products {CSFP), who originally created this model
and decided to share it with the public. It would also not have been established
without those senior figures in the banking industry who have had the foresight
and confidence to support their employees working on credit risk models of
their own, in particular using CreditRisk+. Our special thanks go to CSFP,
Tom Wilde, Fritz-Thomas Murray of WestLB and Markus Petry of Aareal
Bank.
Our sincere thanks go to all the contributors for their work, their en
thusiasm, their reliability and their cooperation. We know that most of the
research had to be done in valuable spare time. We are glad that all of them
were willing to make such sacrifices for the sake of this book.
Our thanks go to all those people in the banking industry who work with
the model and try to extend it with such great enthusiasm.
We are grateful to Springer-Verlag, who immediately welcomed our idea
for this book and encouraged us to work on it.
We would also like to thank all our colleagues and friends who agreeed to
work as referees, Carsten Binnenhei, Leif Boegelein, Gotz Giese, Hermann
Haaf, Hans-Joachim Hiiskemann, Markus Klintworth, Daniel Kluge, Marc
VI Preface
Kliinger, Michael Lesko, Oliver ReiB, Oliver Steinkamp and Dirk Tasche. Jef
frey Boys did a marvellous job of proofreading the manuscript and correcting
the English.
Moreover, we are much obliged to Steffen Graf of Aareal Bank and Frank
Holzwarth of Springer-Verlag for their help with technical problems in prepar
ing the manuscript.
Finally we would like to thank our families, in particular our wives Angelika
and Jutta for their continued support and understanding.
Wiesbaden, Germany VOLKER MATTHIAS GUNDLACH
Hamburg, Germany FRANK BERTHOLD LEHRBASS
October 2003
Contents
Preface ........................................................ V
Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX
1 Introduction
Volker Matthias Gundlach and Frank Berthold Lehrbass............... 1
2 Basics of Credit Risk+
Volker Matthias Gundlach......................................... 7
3 Capital Allocation with CreditRisk+
Dirk Tasche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4 Risk Factor Transformations Relating CreditRisk+ and
Credit Metrics
Christian Wieczerkowski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5 Numerically Stable Computation of CreditRisk+
Hermann Haaf, Oliver Reifl and John Schoenmakers ................. 69
6 Enhanced CreditRisk+
Gotz Giese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
7 Saddlepoint Approximation
Michael B. Gordy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
8 Fourier Inversion Techniques for CreditRisk+
Oliver Reifl ..................................................... 111
VIII Contents
9 Incorporating Default Correlations and Severity Variations
Nese Akkaya, Alexandre Kurth and Armin Wagner ................... 129
10 Dependent Risk Factors
Gotz Giese ...................................................... 153
11 Integrating Rating Migrations
Frank Broker and Stefan Schweizer ................................. 167
12 An Analytic Approach to Rating Transitions
Carsten Binnenhei ............................................... 187
13 Dependent Sectors and an Extension to Incorporate
Market Risk
Oliver Reifl ..................................................... 215
14 Econometric Methods for Sector Analysis
Leif Boegelein, Alfred Hamerle, Michael Knapp and Daniel Rosch ...... 231
15 Estimation of Sector Weights from Real-World Data
Michael Lesko, Frank Schlottmann and Stephan Vorgrimler ............ 249
16 Risk-Return Analysis of Credit Portfolios
Frank Schlottmann, Detlef Seese, Michael Lesko and Stephan Vorgrimler 259
17 Numerical Techniques for Determining Portfolio Credit
Risk
Sandra Merino and Mark Nyfeler .................................. 279
18 Some Remarks on the Analysis of Asset-Backed Securities
Daniel Kluge and Frank B. Lehrbass ................................ 311
19 Pricing and Hedging of Structured Credit Derivatives
Martin Hellmich and Oliver Steinkamp ............................. 325
Index .......................................................... 363
Contributors
NESE AKKAYA
Credit Risk Control, UBS AG, 8050 Zurich, Switzerland
E-MAIL: [email protected]
CARSTEN BINNENHEI
Landesbank Baden-Wiirttemberg, Risikocontrolling, Fritz-Elsas-Str. 31,
D-70 17 4 Stuttgart, Germany
E-MAIL: [email protected]
LEIF BOEGELEIN
Siemens Financial Services, Credit (CR), Seidlstr. 24 a,
D-80335 Miinchen, Germany
E-MAIL: [email protected]
FRANK BROKER
SCHUFA HOLDING AG, Hagenauer Str. 44, D-65203 Wiesbaden, Germany
E-MAIL: [email protected]
GOTZ GIESE
Commerzbank AG, Kaiserplatz 1, D-60261 Frankfurt, Germany
E-MAIL: [email protected]
MICHAEL GORDY
Division of Research & Statistics, Board of Governors of the Federal Reserve
System, Washington, DC 20551, USA
E-MAIL: [email protected]
MATTHIAS GUNDLACH
Aareal Bank AG, Konzerncontrolling Kreditrisiko, Paulinenstr. 15,
D-65189 Wiesbaden, Germany
E-MAIL: matthias.gundlach@ aareal-bank.com
X Contributors
HERMANN HAAF
Commerzbank AG, Risk Control (ZRC), 60261 Frankfurt/Main, Germany
E-MAIL: [email protected]
ALFRED HAMERLE
Lehrstuhl fiir Statistik, Wirtschaftswissenschaftliche Fakultat,
Universitat Regensburg, Germany
E-MAIL: Alfred.Hamerle@wiwi. uni-regensburg.de
MARTIN HELLMICH
Landesb ank Baden-Wiirttemberg, 8830 - Kapitalmarktinvestitionen/
Strukturierung, Am Hauptbahnhof 2, D-70173 Stuttgart, Germany
E-MAIL: [email protected]
DANIEL KLUGE
Portfolio Management/Structured Investments, Credit Treasury,
Deutsche Genossenschafts-Hypothekenbank AG, Rosenstr. 2,
D-20095 Hamburg, Germany
E-MAIL: [email protected]
MICHAEL KNAPP
Lehrstuhl fiir Statistik, Wirtschaftswissenschaftliche Fakultat,
Universitat Regensburg, Germany
E-MAIL: Michael.Knapp@wiwi. uni-regensburg.de
ALEXANDRE KURTH
Credit Risk Control, UBS AG, 8050 Zurich, Switzerland
E-MAIL: [email protected]
FRANK LEHRBASS
Portfolio Management/Structured Investments, Credit Treasury,
Deutsche Genossenschafts-Hypothekenbank AG, Rosenstr. 2,
D-20095 Hamburg, Germany
E-MAIL: [email protected]
MICHAEL LESKO
Research, GILLARDON AG financial software, Alte Wilhelmstr. 4,
D-75015 Bretten, Germany
E-MAIL: [email protected]
SANDRO MERINO
Credit Research, Wealth Management & Business Banking,
UBS AG, Switzerland
E-MAIL: [email protected]