Dr. Antje Schirm ist wissenschaftliche Mitarbeiterin von Prof. Dr. Dr. h.c. Wolfgang Bühler am Center for Doctoral Studies in Economics and Management (CDSEM) und am Lehrstuhl für Finanzierung der Universität Mannheim.
Antje Schirm develops a pricing model for credit risk securitisation, explaining fair note issuance pricing by the underlying credit portfolio risk. The underlying credit portfolio risk is modelled in a market context and the observed payout mechanisms of securitisation structures are translated into a derivatives pricing context. Both these blocks together permit a comparison of fair model prices to issuance prices observed in the young securitisation market, such that discrepancies are uncovered.|Credit risk has become the central focus of risk management in the last decade for a num ber of reasons. First, for a typical continental bank, credit risk is still the predominant risk category. Second, the new Basel Capital Accord of June 2004 allows for more advanced methods to assess the risk related with a bank's credit portfolio. Third, the markets to reallocate credit risk between agents experience the highest growth rate of all derivative markets. Fourth, from a theoretical and an empirical point of view, the modelling and valuation of credit risk is a more demanding problem than the analysis of market risk. Especially, the appropriate modelling of correlation effects, e.g. the correlation between defaults of different creditors or between default probabilities and recovery rates, is'still not satisfactory resolved. Collateralised Debt Obligations (CDOs) represent important derivatives to synthesise and reallocate the risk of banks' credit portfolios. These instruments are of specific interest as they, first, call for a determination of the whole loss distribution of a credit portfolio and not only for a few moments. Second and even more interesting, this loss distribution is carved into senior, mezzanine and junior tranches according to the needs and risk attitudes of the bank and the market.|Credit risk securitisation permits to transfer credit default risk of bank loan portfolios to capital market investors. Both market sides realise distinct benefits: Seen from a sell-side perspective, securitisation is a powerful tool for credit risk mitigation recognised by the supervisory authorities. Seen from a buy-side perspective, investors gain exposure to portfolio credit risk by acquiring tailor-made notes, designed to meet their individual risk preferences. Being a novel investment, price discovery for issued notes is an intriguing issue.
Antje Schirm develops a pricing model for credit risk securitisation, explaining fair note issuance pricing by the underlying credit portfolio risk. This contribution resolves the two key issues on the research agenda from a strongly empirical perspective: Firstly, the underlying credit portfolio risk is modelled in a market context. This allows for model estimation using prices of traded credit-risky securities. Secondly, observed payout mechanisms of securitisation structures are translated into a derivatives pricing context. Both building blocks together permit a comparison of fair model prices to issuance prices observed in the young securitisation market, such that discrepancies are uncovered.
Credit risk securitisation: structures and risk factorsUnderlying credit risk: a reduced-form factor modelModel estimationCDOs: valuation and model specificationThe relevance of credit enhancementsEmpirical pricing comparison: the case for synthetic DBOs
Credit risk has become the central focus of risk management in the last decade for a num ber of reasons. First, for a typical continental bank, credit risk is still the predominant risk category. Second, the new Basel Capital Accord of June 2004 allows for more advanced methods to assess the risk related with a bank's credit portfolio. Third, the markets to reallocate credit risk between agents experience the highest growth rate of all derivative markets. Fourth, from a theoretical and an empirical point of view, the modelling and valuation of credit risk is a more demanding problem than the analysis of market risk. Especially, the appropriate modelling of correlation effects, e.g. the correlation between defaults of different creditors or between default probabilities and recovery rates, is'still not satisfactory resolved. Collateralised Debt Obligations (CDOs) represent important derivatives to synthesise and reallocate the risk of banks' credit portfolios. These instruments are of specific interest as they, first, call for a determination of the whole loss distribution of a credit portfolio and not only for a few moments. Second and even more interesting, this loss distribution is carved into senior, mezzanine and junior tranches according to the needs and risk attitudes of the bank and the market.
1 Introduction.- 1.1 Securitisation: traded portfolio credit risk.- 1.2 Contributions of the study.- 1.3 Outline of the study.- 2 Credit Risk Securitisation: Structures and Risk Factors.- 2.1 From cash-flow allocation to default loss transfer.- 2.2 Classification of structures.- 2.3 Literature review: modelling underlying portfolio credit risk.- 3 Underlying Credit Risk: a Reduced-Form Factor Model.- 3.1 Defaultable bond pricing.- 3.2 Factor model specification.- 4 Model Estimation.- 4.1 Outline of the estimation approach.- 4.2 Bond data for corporate spread estimation.- 4.3 Obtaining implied corporate spreads.- 4.4 Factor process estimation.- 4.5 Explanatory power of the model.- 4.6 Summary of results.- 5 CDOs: Valuation and Model Specification.- 5.1 A basic valuation model.- 5.2 Comparative-static analysis of model parameters.- 5.3 Summary of results.- 6 The Relevance of Credit Enhancements.- 6.1 Effect on tranche loss allocation.- 6.2 Spread accounts: dynamic improvement of overcollateralisation ratios.- 6.3 Full-portfolio risk transfer.- 6.4 Synthetic partial portfolio risk transfer.- 6.5 Summary and evaluation of the hedging quality of spread accounts.- 7 Empirical Pricing Comparison: the Case for Synthetic CBOs.- 7.1 Market environment and sample selection.- 7.2 Sample transactions.- 7.3 Rating assessments and tranche valuation.- 7.4 Discussion.- 8 Conclusion.- A Annotations to the CIR Model.- B Outline of the Kalman Filter Recursion.- C Complementary Tables.
Über den Autor
:Dr. Antje Schirm ist wissenschaftliche Mitarbeiterin von Prof. Dr. Dr. h.c. Wolfgang Bühler am Center for Doctoral Studies in Economics and Management (CDSEM) und am Lehrstuhl für Finanzierung der Universität Mannheim.
Inhaltsverzeichnis
Credit risk securitisation: structures and risk factors
Underlying credit risk: a reduced-form factor model
Model estimation
CDOs: valuation and model specification
The relevance of credit enhancements
Empirical pricing comparison: the case for synthetic DBOs
Klappentext
Credit risk has become the central focus of risk management in the last decade for a num ber of reasons. First, for a typical continental bank, credit risk is still the predominant risk category. Second, the new Basel Capital Accord of June 2004 allows for more advanced methods to assess the risk related with a bank's credit portfolio. Third, the markets to reallocate credit risk between agents experience the highest growth rate of all derivative markets. Fourth, from a theoretical and an empirical point of view, the modelling and valuation of credit risk is a more demanding problem than the analysis of market risk. Especially, the appropriate modelling of correlation effects, e.g. the correlation between defaults of different creditors or between default probabilities and recovery rates, is'still not satisfactory resolved. Collateralised Debt Obligations (CDOs) represent important derivatives to synthesise and reallocate the risk of banks' credit portfolios. These instruments are of specific interest as they, first, call for a determination of the whole loss distribution of a credit portfolio and not only for a few moments. Second and even more interesting, this loss distribution is carved into senior, mezzanine and junior tranches according to the needs and risk attitudes of the bank and the market.
Credit risk securitisation permits to transfer credit default risk of bank loan portfolios to capital market investors. Both market sides realise distinct benefits: Seen from a sell-side perspective, securitisation is a powerful tool for credit risk mitigation recognised by the supervisory authorities. Seen from a buy-side perspective, investors gain exposure to portfolio credit risk by acquiring tailor-made notes, designed to meet their individual risk preferences. Being a novel investment, price discovery for issued notes is an intriguing issue.
Antje Schirm develops a pricing model for credit risk securitisation, explaining fair note issuance pricing by the underlying credit portfolio risk. This contribution resolves the two key issues on the research agenda from a strongly empirical perspective: Firstly, the underlying credit portfolio risk is modelled in a market context. This allows for model estimation using prices of traded credit-risky securities. Secondly, observed payout mechanisms of securitisation structures are translated into a derivatives pricing context. Both building blocks together permit a comparison of fair model prices to issuance prices observed in the young securitisation market, such that discrepancies are uncovered.
