Financial Mathematics, FM50/2016-

This topic is about credit risk measurement. In short, we propose the student to produce a dissertation in two parts, with a third additional part.

Part 1: Write a literature review on Value at Risk (VaR) risk measures, on Credit Value at Risk (CrVaR) and on Credit Risk models both for valuation and risk measurement. We will provide two specific cases as a guide. More details are provided below. The literature review should be based on published journal articles, books, and also on working papers. Working papers should be used mostly for orientation, since their content has not been peer reviewed.

Part 2: Implement numerical and analytical methods to study the specific portfolios Credit Value ar Risk (CrRVaR) risk measure numerically. Produce figures for the portfolios under examination and discuss them. Notice: The distinction between market and credit risk is proving to be somehow artificial, given the inclusion of Credit Valuation Adjustments (CVA, see below) in the valuation and given the losses generated by CVA mark to market during the crisis. This may be a point of debate the student may be willing to discuss.

Part 3: This follows parts 1 and 2, which need to be done first. Here the student will address more advanced issues on credit risk, market risk, trading, different risk measures (for example Expected Shortfall), different dynamics for equity, calibration of the models, Credit Valuation Adjustments (CVA), or different risk factors that have not been considered in the first two parts.

Attachment:- Assignment.rar