Credit Risk Pricing Models

1. Introduction.- 1.1 Motivation.- 1.2 Objectives, Structure, and Summary.- 2. Modeling Credit Risk Factors.- 2.1 Introduction.- 2.2 Definition and Elements of Credit Risk.- 2.3 Modeling Transition and Default Probabilities.- 2.3.1 The Historical Method.- 2.3.2 Excursus: Some Fundamental Mathematics.- 2.3.3 The Asset Based Method.- 2.3.4 The Intensity Based Method.- 2.3.5 Adjusted Default Probabilities.- 2.4 Modeling Recovery Rates.- 2.4.1 Definition of Recovery Rates.- 2.4.2 The Impact of Seniority.- 2.4.3 The Impact of the Industry.- 2.4.4 The Impact of the Business Cycle.- 2.4.5 LossCalcTM: Moody's Model for Predicting Recovery Rates.- 3. Pricing Corporate and Sovereign Bonds.- 3.1 Introduction.- 3.1.1 Defaultable Bond Markets.- 3.1.2 Pricing Defaultable Bonds.- 3.2 Asset Based Models.- 3.2.1 Merton's Approach and Extensions.- 3.2.2 First Passage Time Models.- 3.3 Intensity Based Models.- 3.3.1 Short Rate Type Model.- 4. Correlated Defaults.- 4.1 Introduction.- 4.2 Correlated Asset Values.- 4.3 Correlated Default Intensities.- 4.4 Correlation and Copula Functions.- 5. Credit Derivatives.- 5.1 Introduction to Credit Derivatives.- 5.2 Technical Definitions.- 5.3 Single Counterparty Credit Derivatives.- 5.3.1 Credit Options.- 5.3.2 Credit Spread Products.- 5.3.3 Credit Default Products.- 5.3.4 Par and Market Asset Swaps.- 5.3.5 Other Credit Derivatives.- 5.4 Multi Counterparty Credit Derivatives.- 5.4.1 Index Swaps.- 5.4.2 Basket Default Swaps.- 5.4.3 Collateralized Debt Obligations (CDOs).- 6. A Three-Factor Defaultable Term Structure Model.- 6.1 Introduction.- 6.1.1 A New Model For Pricing Default able Bonds.- 6.2 The Three-Factor Model.- 6.2.1 The Basic Setup.- 6.2.2 Valuation Formulas For Contingent Claims.- 6.3 The Pricing of Defaultable Fixed and Floating Rate Debt.- 6.3.1 Introduction.- 6.3.2 Defaultable Discount Bonds.- 6.3.3 Defaultable (Non-Callable) Fixed Rate Debt.- 6.3.4 Defaultable Callable Fixed Rate Debt.- 6.3.5 Building a Theoretical Framework for