By Jeffrey R. Bohn
Cutting-edge strategies and instruments had to facilitate potent credits portfolio administration and strong quantitative credits research
packed with in-depth insights and professional suggestion, lively credits Portfolio administration in perform serves as a complete creation to either the speculation and real-world perform of credits portfolio administration. The authors have written a textual content that's technical sufficient either when it comes to history and implementation to hide what practitioners and researchers want for really utilising most of these chance administration instruments in huge companies yet which whilst, avoids technical proofs in want of actual applications. all through this booklet, readers might be brought to the theoretical foundations of this self-discipline, and know about structural, reduced-form, and econometric versions effectively utilized in the marketplace this day. The booklet is filled with hands-on examples and anecdotes. concept is illustrated with sensible software. The authors' web site presents extra software program instruments within the kind of Excel spreadsheets, Matlab code and S-Plus code. every one element of the ebook concludes with assessment questions designed to spark extra dialogue and mirrored image at the innovations awarded.
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Additional resources for Active Credit Portfolio Management in Practice
Even so, reduced-form models tend to focus on processes that drive credit quality. They can also be extended to include processes that drive the state of market liquidity. What can substantially muddy this modeling challenge is the possibility of a liquidity-based default or liquidity-based change in security value. In a circumstance in which market liquidity has dried up, a firm with sufficient market value may still default because it cannot roll over its short-term debt as it comes due. The claims represented in the issued loans and bonds of a particular obligor may still relate to that obligor’s valuable assets, but the absence of liquidity in the market prevents a portfolio manager or credit trader from finding new financing or selling positions in its portfolio to cover existing claims.
The Framework: Definitions and Concepts 15 destroying relationship banking. He went on to proclaim that a computer model could never match his capability for assessing a company’s credit quality. While his track record was never verified to our knowledge, we are aware of several studies5 at banks that show that on balance, subjective credit risk assessment alone is decidedly inferior to quantitative-based approaches (in a later chapter we explore in more detail how to evaluate models). Further, the credit officer’s first statement in this anecdote about the destruction of relationship banking seemed to imply a simplified view of how models should be used.
When Japan’s economic bubble burst and the 1990s uncovered the disastrous impact of holding a concentrated portfolio, large Japanese banks watched the loans in their portfolios deteriorate together. This problem is by no means unique to Japan. It is hard to find any country with a functioning banking system that has not seen this kind of bank crisis at some point in its financial history. Origination expertise in a particular area leads to concentrations that create problems when that sector or geography becomes troubled.