Credit Risk: Pricing, Measurement, and Management - Duffie, Singleton

In this book, two of America's leading economists provide the first integrated treatment of the conceptual, practical, and empirical foundations for credit risk pricing and risk measurement. Masterfully applying theory to practice, Darrell Duffie and Kenneth Singleton model credit risk for the purpose of measuring portfolio risk and pricing defaultable bonds, credit derivatives, and other securities exposed to credit risk. The methodological rigor, scope, and sophistication of their state-of-the-art account is unparalleled, and its singularly in-depth treatment of pricing and credit derivatives further illuminates a problem that has drawn much attention in an era when financial institutions the world over are revising their credit management strategies.

Duffie and Singleton offer critical assessments of alternative approaches to credit-risk modeling, while highlighting the strengths and weaknesses of current practice. Their approach blends in-depth discussions of the conceptual foundations of modeling with extensive analyses of the empirical properties of such credit-related time series as default probabilities, recoveries, ratings transitions, and yield spreads. Both the "structural" and "reduced-form" approaches to pricing defaultable securities are presented, and their comparative fits to historical data are assessed. The authors also provide a comprehensive treatment of the pricing of credit derivatives, including credit swaps, collateralized debt obligations, credit guarantees, lines of credit, and spread options. Not least, they describe certain enhancements to current pricing and management practices that, they argue, will better position financial institutions for future changes in the financial markets.

  • Level: Intermediate+
  • Major Topics: T31, T32, T33, T36
  • Minor Topics: T34, T37, T44


Online Resources

Sample chapter

Table of Contents

1. Introduction
2. Economic Principles of Risk Management
3. Default Arrival: Historical Patterns and Statistical Models
4. Ratings Transitions: Historical Patterns and Statistical Models
5. Conceptual Approaches to Valuation of Default Risk
6. Pricing Corporate and Sovereign Bonds
7. Empirical Models of Defaultable Bond Spreads
8. Credit Swaps
9. Optional Credit Pricing
10. Correlated Defaults
11. Collateralized Debt Obligations
12. Over-the-Counter Default Risk and Valuation
13. Integrated Market and Credit Risk Measurement…read more