Managing Credit Risk in Corporate Bond Portfolios: A Practitioner's Guide

Preface.

Chapter 1. Introduction.

Motivation.

Summary of the Book.

Chapter 2. Mathematical Preliminaries.

Probability Theory.

Linear Algebra.

Questions.

Chapter 3. The Corporate Bond Market.

Features of Corporate Bonds.

Corporate Bond Trading.

Role of Corporate Bonds.

Relative Market Size.

Historical Performance.

The Case for Corporate Bonds.

Questions.

Chapter 4. Modeling Market Risk.

Interest Rate Risk.

Portfolio Aggregates.

Dynamics of the Yield Curve.

Other Sources of Market Risk.

Market Risk Model.

Questions.

Chapter 5. Modeling Credit Risk.

Elements of Credit Risk.

Quantifying Credit Risk.

Numerical Examples.

Questions.

Chapter 6. Portfolio Credit Risk.

Quantifying Portfolio Credit Risk.

Default Correlation.

Default Mode: Two-Bond Portfolio.

Estimating Asset Return Correlation.

Credit Risk Under Migration Mode.

Numerical Example.

Questions.

Chapter 7. Simulating the Loss Distribution.

Monte Carlo Methods.

Credit Loss Simulation.

Tail Risk Measures.

Numerical Results.

Questions.

Chapter 8. Relaxing the Normal Distribution Assumption.

Motivation.

Portfolio Credit Risk.

Loss Simulation.

Appendix.

Questions.

Chapter 9. Risk Reporting and Performance Attribution.

Relative Credit Risk Measures.

Marginal Credit Risk Contribution.

Portfolio Credit Risk Report.

Portfolio Market Risk Report.

Performance Attribution.

Questions.

Chapter 10. Portfolio Optimization.

Portfolio Selection Techniques.

Optimization Methods.

Practical Difficulties.

Portfolio Construction.

Portfolio Rebalancing.

Devil in the Parameters: A Case Study.

Questions.

Chapter 11. Structured Credit Products.

Introduction to CDOs.

Anatomy of a CDO Transaction.

Major Sources of Risk in CDOs.

Rating a CDO Transaction.

Tradable Corporate Bond Baskets.

Questions.

Solutions to End-of-Chapter Questions.

Index.