Abstract
Credit risk is one of the oldest forms of risk in the financial markets, and still revolutionary changes and developments are taking place in the credit markets today. To emphasize the growing importance of this market segment and its risks which shouldn’t be ignored, we first give a brief overview of the latest credit market and credit risk developments.
“Prediction is very difficult, especially of the future.”
Niels Bohr
“When I was an undergraduate 30 or so years ago, banks were originate-and-hold institutions focused primarily on traditional loans; that is no longer the case.”
Charles Smithson, 2001
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References
See Historical Default Rates of Corporate Bond Issuers, 1920–1999 (2000a) and Hamilton, Cantor & Ou (2002).
See, e.g., exhibit 2 on page 222 in Wilson (1998) which shows the dramatically falling margins which banks earn from the traditional loan product.
Note, that in this text we do not treat the theory of pricing non defaultable bonds at length. Readers not familiar with this theory at all are refered to the excellent textbook of Brigo & Mercurio (2001).
See, e.g., Harrison & Pliska (1981) and Duffle, Schroder & Skiadas (1996).
See, e.g., Briys, Bellalah, Mai & de Varenne (1998), p. 78.
For an introduction to change of numéraire and change of time techniques see, e.g., Briys et al. (1998), chapter 4.
For an introduction to the Heath-Jarrow-Morton framework see, e.g., Heath, Jarrow & Morton (1992).
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© 2004 Springer-Verlag Berlin Heidelberg
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Schmid, B. (2004). Pricing Corporate and Sovereign Bonds. In: Credit Risk Pricing Models. Springer Finance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-24716-6_3
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DOI: https://doi.org/10.1007/978-3-540-24716-6_3
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-07335-9
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