An Integrated Approach to Credit Risk Management and the Valuation of Credit Derivatives

Funding: 2004: $11,778
2005: $23,556
2006: $23,556
2007: $11,778

Project Member(s): Schlogl, E.

Funding or Partner Organisation: Australian Research Council (ARC Linkage Projects)
ANZ Banking Group Limited (ANZ Investment Bank)

Start year: 2005

Summary: Financial positions subject to risk of default typically involve three components: risk which is traded, diversifiable or neither. The project will analyse the relationship of these default risk components by rigorously modeling default dependence between obligors and harnessing the information in liquid market prices, such as credit spreads. On the basis of risk capital allocation, it will eliminate the arbitrariness in pricing non-traded risks. This will yield an integrated credit risk management methodology ready for the next generation of regulatory requirements currently under discussion by the Basel Committee on Banking Supervision.

Keywords: Credit risk, Risk management, Credit derivatives, Incomplete markets, Calibration, Hedging,

FOR Codes: Finance, Finance and investment services