Active Credit Portfolio Management A Practical Guide to Credit Risk Management Strategies
Auteurs : Felsenheimer Jochen, Gisdakis Philip, Zaiser Michael
The book is obligatory for credit portfolio managers of funds and insurance companies, as well as bank-book managers, credit traders in investment banks, cross-asset players in hedge funds, and risk controllers.
Foreword 13
Introduction and Acknowledgements 17
Part I Markets 19
1 Market Structure 21
1.1 Market Development 22
1.1.1 Historical Development 22
1.1.2 Size and Growth of the Market 27
1.2 Market Participants 27
1.2.1 Banks 28
1.2.2 Insurance Companies 29
1.2.3 Funds and Asset Managers 30
1.2.4 Retail Clients 30
1.2.5 Hedge Funds 30
1.3 Issuing Debt from a Company’s Viewpoint 31
1.4 Ratings and Rating Agencies 33
1.4.1 Are Ratings an Efficient Source for Pricing Credits? 36
1.5 Credit Classes 39
1.5.1 High-Grade Universe 39
1.5.2 High-Yield and Crossover Credits 40
1.5.3 High-Quality Segment 41
1.5.4 Asset Backed Securities 42
2 Instruments 45
2.1 Straight Bonds 45
2.2 Bonds with Embedded Options 47
2.3 Exotics 48
2.3.1 Payment-in-Kind Notes 49
2.3.2 Hybrids or Subordinated Corporate Bonds 50
2.4 Hybrid Bank Capital 53
2.5 Single-Name Credit Derivatives 55
2.5.1 Credit Default Swaps 55
2.5.2 Digital Default Swaps 58
2.5.3 Equity Default Swaps 58
2.5.4 Recovery Default Swaps 60
2.5.5 Constant Maturity Credit Default Swaps 61
2.6 Portfolio Credit Derivatives 62
2.6.1 Basket/Index Swaps – iTraxx Europe Benchmark 62
2.6.2 Default Baskets 65
2.6.3 Standardized iTraxx Tranches 67
2.6.4 Spread Options 68
2.6.5 Future Contracts 70
2.7 Outlook on Product Development 70
3 Company and Debt Instrument Analysis 73
3.1 Sovereign Risk and Government Support 74
3.2 Business Risk 74
3.3 Financial Risk 82
3.3.1 Off-Balance-Sheet Adjustments 86
3.3.2 Adjustment of Ratios 91
3.4 The Rating Agencies’ Methodology 93
3.5 Evaluation of Specific Debt Instruments 96
3.6 Recovery Rate Estimates 99
4 The Economics of Credit Spreads 103
4.1 Macro Drivers 103
4.1.1 Credits in the Business Cycle 103
4.1.2 Yields and Spreads 106
4.1.3 Credits and Exchange Rates 108
4.1.4 Credits and Commodity Prices 109
4.1.5 Credits and Inflation 111
4.1.6 Credits and External Shocks 113
4.2 Micro Drivers 115
4.3 Credit Quality 117
4.3.1 Credit Quality Trend 117
4.3.2 Default Rates 117
4.3.3 Recovery Rates: The Collins & Aikman Case 120
4.3.4 Implied Ratings 122
4.4 Equity–Debt Linkage 123
4.4.1 The Basic Merton Approach: Structural Models 123
4.4.2 Merton in Practice 128
4.4.3 Leap-Put Skewness as an Equity–Debt Indicator 131
4.4.4 Empirical Evidence for the Equity–Debt Linkage 133
4.5 Market Technicals 136
4.5.1 Is there a New Issuance Premium? 137
4.5.2 Technical Bid 138
4.5.3 The Impact of Syndicated Loans on Corporate Bonds 139
Part II Models 141
5 Fixed Income Basics 143
5.1 Basic Valuation Concepts 143
5.1.1 The Discount Function 143
5.1.2 Spot Rates and the Term Structure of Interest Rates 149
5.1.3 Forward Rates 154
5.2 Obtaining the Term Structure of Interest Rates 158
5.3 The Yield to Maturity 159
5.4 Measurement of Interest Rate Risk 162
6 Spread Measures 171
6.1 Basic Considerations 171
6.2 Yield Spreads 173
6.3 Z-Spreads 177
6.4 Asset Swap Spreads 180
6.5 Spread Measures for Floaters 184
6.6 Spreads and the Real Economy 186
6.7 Conclusion 192
7 Basics of Credit Risk Models 195
7.1 The Components of Credit Risk 196
7.2 A Single-Step, Two-Stage Model 198
7.3 A Multi-Step Model for Zero Coupon Bonds 202
7.4 The Multi-Step Model 208
7.5 Continuous-Time Approach 210
7.6 Recovery Treatment 217
7.6.1 Fitch’s Recovery-Rating Methodology 228
7.7 The Term Structure of Credit Spreads 231
8 Single-Name Models 237
8.1 Reduced-Form Models 238
8.1.1 Binomial Tree Models for Default Risk 244
8.1.2 Reduced-Form Models and Illiquid Claims 249
8.2 Structural Models 250
8.3 Rating-Based Transition Matrix Models 260
8.3.1 Redefining the Default Event 265
9 Portfolio Models 271
9.1 The Loss Distribution and its Impact on Portfolio Derivatives 273
9.2 Independent Defaults 276
9.3 Default Dependency 282
9.4 Term-Structure Effects 288
9.5 Valuing First-to-Default Baskets 289
9.6 Valuing CDO Tranches with the HLPGC Model 292
9.7 Spread Dispersion 296
9.8 Price Discovery versus Model Competition 300
10 Valuation of Credit Derivatives 303
10.1 Credit Default Swaps 304
10.1.1 Discrete-Time Model 305
10.1.2 Obtaining the Survival Probability Curve 311
10.1.3 Forward CDS Valuation 314
10.1.4 CDS Sensitivities 316
10.1.5 Continuous-Time Model 318
10.1.6 Bloomberg’s CDSW Function 319
10.2 Options on Credit-Risky Instruments 322
10.2.1 Single-Name Credit Default Swaptions 323
10.2.2 Index Swaptions 326
10.3 CDS Indices 327
10.4 nth-to-Default Baskets 330
10.5 Collateralized Debt Obligations 337
10.5.1 Standardized iTraxx Tranches 338
10.5.2 Compound and Base Correlation 341
10.5.3 Sensitivities of iTraxx Index Tranches 346
10.6 Exotic Derivatives 357
10.6.1 Equity Default Swaps 357
10.6.2 Constant Maturity Structures 358
10.6.3 Digital Default Swaps and Recovery Swaps 360
11 Portfolio Risk Measurement 365
11.1 Risk Measures 365
11.1.1 Market Risk versus Credit Risk 365
11.1.2 Value at Risk and Conditional Value at Risk 367
11.1.3 Risk Components 372
11.2 Credit Portfolio Models 373
Part III Management 377
12 Principles of Credit Portfolio Management 379
12.1 The Role of ACPM in the Asset Allocation Process 379
12.2 Management Styles: Passive or Active 386
12.2.1 Passive Management 386
12.2.2 Active Management 388
12.3 Quantitative and Fundamental Credit Research 389
12.4 Diversification in Credit Portfolios 391
12.5 Credit Risk Management in an ALM Environment 393
12.6 Credits in the Global Asset Allocation 394
12.6.1 Increasing Importance of Credit-Risky Instruments 394
12.6.2 Credits, Government Bonds, and Equities 395
12.7 Building Blocks of Credit Portfolio Management 397
12.7.1 Step 1: Investment Targets 398
12.7.2 Step 2: Risk Factors 400
12.7.3 Step 3: Economic Variables 401
12.7.4 Step 4: Forecasting and Scenario Assessment 401
12.7.5 Step 5: Sensitivities 402
12.7.6 Step 6: Portfolio Optimization Analysis 403
12.7.7 Step 7: Portfolio Adjustments 404
12.7.8 Step 8: Performance Analysis 405
12.8 Key Portfolio Figures 406
13 Portfolio Allocation 409
13.1 Indices 410
13.1.1 The Function of Indices 410
13.1.2 The iBoxx € Index Universe 411
13.1.3 Analyzing the RDAX 413
13.2 Sector Allocation in a Markowitz Framework 418
13.3 Quality Allocation 421
13.4 Tools to Derive the Optimal Allocation 424
13.4.1 Alpha and Beta 425
13.4.2 The Shortcomings of a Beta Analysis 425
13.4.3 Aggregated Z-Scores 427
13.4.4 Equity Volatility as a Tool in the Allocation Process 428
14 Performance Measures 431
14.1 Tracking Error 432
14.2 Sharpe Ratio and Treynor Ratio 433
14.3 Information Ratio 435
14.4 Summary 436
15 Performance Analysis 437
15.1 Return Accumulation 437
15.2 Return Attribution Analysis 438
16 Hedging Credit Risk 443
16.1 Hedging on a Single-Name Level 443
16.1.1 Basic Considerations 443
16.1.2 Hedging Default Risk 445
16.1.3 Hedging Spread Risk 448
16.2 Hedging on a Portfolio Level 452
16.2.1 Basic Considerations 453
16.2.2 Hedging Systematic Spread Risk for a Single Cash Bond 453
16.2.3 Hedging Systematic Spread Risk for a Credit Portfolio 458
16.2.4 Finding the Right Hedging Instrument 462
17 Trading Strategies 469
17.1 Trading Cash Bonds 469
17.2 Trading Strategies with Single-Name CDS 472
17.2.1 Plain-Vanilla CDS Trades 474
17.2.2 Switch Ideas 474
17.2.3 Curve Trades 475
17.3 Portfolio Derivatives Trades 476
17.3.1 Single Name versus Sector or Market 476
17.3.2 Core–Satellite Strategies 477
17.3.3 Sector and Segment Trades 478
17.3.4 Trading the Skew 479
17.3.5 Basis Trades 481
17.3.6 First-to-Default Baskets 482
17.3.7 iTraxx Tranches versus Default Baskets 485
17.3.8 Playing the Steepness of the iTraxx Curve 488
17.4 Spread Options: Single and Complex Strategies 489
17.5 CPPI Strategies Including iTraxx Indices 490
17.6 Correlation Trading 492
17.7 Capital Structure Arbitrage Trades 494
17.8 Recovery Trades 495
17.9 EDS versus CDS and the Role of DDS 496
17.10 CDS–Cash–Repo Arbitrage 500
17.10.1 The Repo Market 500
17.10.2 How an Arbitrage Trade Works 501
18 Operational Issues: Accounting 503
18.1 An Introduction to IAS 39 504
18.1.1 The Scope of IAS 39 504
18.1.2 Categories of Financial Instruments 505
18.1.3 Measurement 507
18.1.4 Recognition and Derecognition 512
18.1.5 Embedded Derivatives 513
18.1.6 Hedge Accounting 515
18.2 IAS 39 Accounting for Credit Instruments 518
18.2.1 Bonds and Loans 518
18.2.2 Credit Default Swaps 521
18.2.3 Total Return Swaps 523
18.2.4 Credit Linked Notes 525
18.2.5 iTraxx Products 526
18.2.6 Other Instruments of Interest 527
19 Operational Issues: Basel II 529
19.1 An Introduction to Basel II 529
19.1.1 The Basic Structure 529
19.1.2 The Standardized Approach 533
19.1.3 The Foundation IRB Approach 534
19.1.4 The Advanced IRB Approach 538
19.1.5 Securitization Transactions 540
19.1.6 Credit Risk Mitigation 543
19.2 Basel II for Credit Instruments 547
19.2.1 Credit Default Swaps 547
19.2.2 Total Return Swaps 550
19.2.3 Credit Linked Notes 551
19.2.4 Default Baskets 553
19.2.5 iTraxx Products 555
Part IV Appendix 557
A.1 Analytics with Bloomberg and Reuters 559
A.1.1 Bloomberg 559
A.1.2 Reuters 560
A.2 Default and Recovery Data from Rating Agencies 563
References 569
Index 575
Dr. Philip Gisdakis is a Quantitative Credit Strategist. He studied Mathematical Finance at the University of Oxford and holds a PhD degree in Theoretical Chemistry from Technische Universität München.
Michael Zaiser is a Credit Strategist at HVB Corporates & Markets. He studied Business Administration and Mathematics at Johann Wolfgang Goethe-Universität Frankfurt am Main.
Date de parution : 03-2006
Ouvrage de 581 p.
16.3x23.8 cm
