9. Credit Scoring and the Price of Credit Risk

  1. Charles S. Tapiero

Published Online: 6 DEC 2011

DOI: 10.1002/9781118268155.ch9

Risk Finance and Asset Pricing: Value, Measurements, and Markets

Risk Finance and Asset Pricing: Value, Measurements, and Markets

How to Cite

Tapiero, C. S. (2010) Credit Scoring and the Price of Credit Risk, in Risk Finance and Asset Pricing: Value, Measurements, and Markets, John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118268155.ch9

Publication History

  1. Published Online: 6 DEC 2011
  2. Published Print: 20 SEP 2010

ISBN Information

Print ISBN: 9780470549469

Online ISBN: 9781118268155

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Keywords:

  • credit risk;
  • financial institutions;
  • credit scoring;
  • financing wars;
  • certificate of deposits

Summary

This chapter contains sections titled:

  • Overview

  • Credit and Money

  • Credit and Credit Risk

  • Pricing Credit Risk: Principles

  • Credit Scoring and Granting

  • Credit Scoring: Real Approaches

  • Example: A Separatrix

  • Example: The Separatrix and Bayesian Probabilities

  • Probability Default Models

  • Example: A Bivariate Dependent Default Distribution

  • Example: A Portfolio of Default Loans

  • Example: A Portfolio of Dependent Default Loans

  • Problem 9.1: The Joint Bernoulli Default Distribution

  • Credit Granting

  • Example: Credit Granting and Creditor's Risks

  • Example: A Bayesian Default Model

  • Example: A Financial Approach

  • Example: An Approximate Solution

  • Problem 9.2: The Rate of Return of Loans

  • The Reduced Form (Financial) Model

  • Example: Calculating the Spread of a Default Bond

  • Example: The Loan Model Again

  • Example: Pricing Default Bonds

  • Example: Pricing Default Bonds and the Hazard Rate

  • Examples

  • Example: The Bank Interest Rate on a House Loan

  • Example: Buy Insurance to Protect the Portfolio from Loan Defaults

  • Problem 9.3: Use the Portfolio as an Underlying and Buy or Sell Derivatives on This Underlying

  • Problem 9.4: Lending Rates of Return

  • Credit Risk and Collateral Pricing

  • Example: Hedge Funds Rates of Return

  • Example: Equity-Linked Life Insurance

  • Example: Default and the Price of Homes

  • Example: A Bank's Profit from a Loan

  • Risk Management and Leverage

  • Summary