| Introduction: Fundamentals of Credit Risk Management |
| ▪ | Definition of credit risk
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| ▪ | Various forms of credit risk: default risk, risk of credit downgrade, rating transition risk
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| ▪ | Objective of credit risk models
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| ▪ | Various phases of the construction of a credit risk model
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| ▪ | Main indicators
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| . | Exposure in case of default
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| ▪ | Unexpected losses
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| ▪ | Transition matric
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| ▪ | Value-at-Risk (VaR) |
| Individual Risk Modelling |
| ▪ | Rating
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| ▪ | Expected losses (EL):
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| ▪ | Unexpected losses (UL):
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| . | Example of internal model
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| ▪ | Reduced form models
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| . | Default and Poisson process
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| . | CDS pricing and extraction of default probabilities |
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| Introduction to copulas |
| Modelling joint risk |
| Default correlation |
| ▪ | Default correlation: historical analysis
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| ▪ | Models of default correlation
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| . | A simple case: diversity score
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| . | Detailed study of the most common model: factor model
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| ▪ | Losses distribution via copula functions
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| ▪ | Modelling CDOs
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| . | Rating of a CDO tranche |
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| Application to Risk Measurement |
| ▪ | Credit risk measurement
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| ▪ | Bernoulli model
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| ▪ | Poisson model
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| ▪ | Model underlying Basel II
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| ▪ | CreditRisk+ model
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| ▪ | Factor models: CreditMetrics, KMV
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| ▪ | How factor models work
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| ▪ | Portfolio models
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| . | Method of capital allocation
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