Credit Analysis Models
Exam Focus
This topic review augments credit analysis covered at Level I with newer models of credit analysis including structural models and reduced form models. Be able to differentiate between the two and know the merits and drawbacks of both. Be able to compute the credit valuation adjustment and expected change in a bond’s price given credit migration, and credit spread given CVA.
Finally, understand how credit analysis of ABS differs from credit analysis of corporate debt.
This topic review provides a broad overview of evaluation of credit risk. Do note that while credit risk and default risk are often used interchangeably, credit risk is a broader term. Credit risk includes the risk of default, as well as the risk of worsening credit quality (even if default does not occur).
Modules
- Module 26.1Credit Risk MeasuresExplain expected exposure, the loss given default, the probability of default, and the credit valuation adjustment.6 min · 1 LOS
- Module 26.2Analysis Of Credit Risk2 min
- Module 26.3Credit Scores And Credit RatingsExplain credit scores and credit ratings. · Calculate the expected return on a bond given transition in its credit rating.2 min · 2 LOS
- Module 26.4Structural And Reduced Form ModelsExplain structural and reduced form models of corporate credit risk, including assumptions, strengths, and weaknesses.3 min · 1 LOS
- Module 26.5Credit Spread AnalysisCalculate the value of a bond and its credit spread, given assumptions about the credit risk parameters.2 min · 1 LOS
- Module 26.6Credit SpreadInterpret changes in a credit spread. · Explain the determinants of the term structure of credit spreads and interpret a term structure of credit spreads.5 min · 2 LOS
- Module 26.7Credit Analysis Of Securitized DebtCompare the credit analysis required for securitized debt to the credit analysis of corporate debt.3 min · 1 LOS