PRODUCT INFORMATIONThere are eight credit risk modelling applications in this section. The descriptions in this section are brief. Click on the respective application link button to get to the application site, then click on the valuation procedure link for more details.
Simulating credit-ratings transitions. This application uses Monte-Carlo simulation to simulate one-year credit-ratings transitions. It displays the proportions of the credit variable in each credit category. The output proportions can be used to value the credit variable after one year under the assumption that the simulated ratings transitions are realised. If the credit variable is re-valued after one year under the assumption that the credit variable remains in the same category, and subtract this value from the previous value, we isolate the value of the change in price of the credit variable due to credit migrations and defaults.
Simulating times-to-default. This application uses Monte-Carlo simulation to simulate times-to-default. It displays the proportions of the credit variable defualting in future periods. The output proportions can be used as basis for reserving for future losses due to defaults.
Risk-neutral default probabilities from bond prices. This application calculates risk neutral default probabilities implied by bond prices.
Risk-neutral default probabilities from asset-swap-spreads. This application calculates risk neutral default probabilities implied by asset-swap-spreads.
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Implied hazard rate and recovery rate.This application uses iteration to imply hazard rate and recovery rate from a newly issued vanilla credit-default-swap spread and its corresponding binary-credit-default-swap spread.
Boot-strapping hazard rates.This application boot-straps the hazard-rate curve from an array of actively traded credit default swaps.
Boot-strapping credit-value-adjustment-factor multipliers. This application boot-straps counterparty credit-value-adjustment-factor multipliers from the counterparty borrowing-rate curve and the risk-free yield curve.
Merton model. This application uses iteration to calculate the risk-neutral default probability and recovery rate implied by the equity price of a geared company.