Véber, Miklós
(Morgan Stanley)
The role of rating philosophy at
calculation of credit measures
Probabilities of default
(PDs) are fundamental inputs into many types of credit risk management processes,
as well as in pricing and hedging of credit risk. There are many different
models applicable for calculating PDs, but probably the largest difference
among these approaches is often the degree to which each model has a
point-in-time (PIT) or through-the-cycle (TTC) orientation, also called as
rating philosophy.
A PIT credit risk measure
is one which utilizes all available pieces of information as of a given date to
estimate a firm’s expected probability of default over some time horizon. The
information set includes not just expectations about a firm’s own long-run
credit risk trend, but sectoral, geographic and macroeconomic trends as well.
Consequently, PIT PDs react immediately to all news that affects a firm’s risk
of default, and hence they are highly volatile and pro-cyclical. A TTC credit
risk measure primarily reflects a firm’s long-run, enduring credit risk trend
and as such its predominant feature is the high degree of stability over the
credit cycle and the smoothness of change over time.
Based on a study prepared by Moody’d
Analytics, we will show how to develop a TTC risk measure, called Expected
Default Frequency (EDF) with help of Black-Scholes-Merton model.
The talk is held in English!
Az előadás nyelve angol!
Date: Nov 27, Tuesday 4:15pm
Place: BME, Building „Q”, Room QBF13