Theoretical Foundations of Credit Risk Fundamentals and Methods of Determining Credit Risk

Abstract

This chapter provides fundamentals of credit risk underlying the rest of my thesis. Section 3.1 introduces the term “credit risk” and provides a classification of credit risk into various risk categories. In Section 3.2, I discuss credit risk measurement based on two theoretical models: structural and reduced-form approaches. In Section 3.3, I proceed with the measurement of credit risk, whereby the credit derivative CDS is considered in detail. Figure 3.1 illustrates the structure of this chapter.