Introduction to Credit Risk Modeling

While continuing to focus on common mathematical approaches to model credit portfolios, this second edition presents updates on model developments that have occurred since the publication of the best-selling first edition. It contains a new section on multi-period models and discusses recent developments in structured credit. Along with many worked out examples and numerical results, this edition also includes an expanded section on techniques for the generation of loss distributions as well as discussions of new topics, such as spectral risk measures, an axiomatic approach to capital allocation, and nonhomogeneous Markov chains.

“... this is a concise book for exploring the limitations of credit risk models and, to a lesser degree, asset valuation models. Read this book for a companionable journey through some of the limiting assumptions that make the models tractable. ... it may be the first one [book] that wastes no time in getting to the point, and moving on. --Annals of Actuarial Science, Vol. 5, June 2011 Bluhm, Overbeck, and Wagner offer help to mathematicians and physicists leaving the academy to work as risk or portfolio managers. For this introduction, they focus on main themes rather than details, and on portfolio rather than single obligor risk. ... this second [edition] takes account of problems in the banking industry [from] 2007-09. --SciTech Book News, February 2011 Having a valid and up-to-date credit risk model (or models) is one of the most important aspects in today's risk management. The models require quite a bit of technical as well as practical know-how. Introduction to Credit Risk Modelingserves this purpose well. ... it would best fit the practitioner's needs. For students it can also be of great use, as an introductory course for credit risk models. A great first step into credit risk modeling. ... The book provides a nice coherent overview of the methods used in capital allocation. ... The book is written in a mixture of theorem-proof and applied styles. ... I find this rather pleasing, as it gives the reader the edge of theoretical exposition, which is extremely important. ... One really useful side of the book is that it provides step-by-step guide to methods presented. This should be really appreciated in industry and among students. ... --MAA Reviews, January 2011 Praise for the First Edition This is an outstanding book on the default models that are used internally by financial institutions. This practical book delves into the mathematics, the assumptions and the approximations that practitioners apply to make these models work. --Glyn A. Holton, Contingency Analysis There are so many financial tools available today and numbers are likely to grow in the future. If you work in this field of credit risk modelling it is worth looking at the theoretical background, and this book is a well-rounded introduction. --Journal of the Operational Research Society As an introductory survey it does an admirable job. ... this book is an important guide into the field of credit risk models. Mainly for the practitioner ... It is well written, fairly easy to follow. --Horst Behncke, Zentralblatt MATH ents. ... --MAA Reviews, January 2011 Praise for the First Edition This is an outstanding book on the default models that are used internally by financial institutions. This practical book delves into the mathematics, the assumptions and the approximations that practitioners apply to make these models work. --Glyn A. Holton, Contingency Analysis There are so many financial tools available today and numbers are likely to grow in the future. If you work in this field of credit risk modelling it is worth looking at the theoretical background, and this book is a well-rounded introduction. --Journal of the Operational Research Society As an introductory survey it does an admirable job. ... this book is an important guide into the field of credit risk models. Mainly for the practitioner ... It is well written, fairly easy to follow. --Horst Behncke, Zentralblatt MATH asy to follow. --Horst Behncke, Zentralblatt MATH”

! this is a concise book for exploring the limitations of credit risk models and, to a lesser degree, asset valuation models. Read this book for a companionable journey through some of the limiting assumptions that make the models tractable. ! it may be the first one [book] that wastes no time in getting to the point, and moving on. --Annals of Actuarial Science, Vol. 5, June 2011 Bluhm, Overbeck, and Wagner offer help to mathematicians and physicists leaving the academy to work as risk or portfolio managers. For this introduction, they focus on main themes rather than details, and on portfolio rather than single obligor risk. ! this second [edition] takes account of problems in the banking industry [from] 2007-09. --SciTech Book News, February 2011 Having a valid and up-to-date credit risk model (or models) is one of the most important aspects in today's risk management. The models require quite a bit of technical as well as practical know-how. Introduction to Credit Risk Modeling serves this purpose well. ! it would best fit the practitioner's needs. For students it can also be of great use, as an introductory course for credit risk models. A great first step into credit risk modeling. ! The book provides a nice coherent overview of the methods used in capital allocation. ! The book is written in a mixture of theorem-proof and applied styles. ! I find this rather pleasing, as it gives the reader the edge of theoretical exposition, which is extremely important. ! One really useful side of the book is that it provides step-by-step guide to methods presented. This should be really appreciated in industry and among students. ! --MAA Reviews, January 2011 Praise for the First Edition This is an outstanding book on the default models that are used internally by financial institutions. This practical book delves into the mathematics, the assumptions and the approximations that practitioners apply to make these models work. --Glyn A. Holton, Contingency Analysis There are so many financial tools available today and numbers are likely to grow in the future. If you work in this field of credit risk modelling it is worth looking at the theoretical background, and this book is a well-rounded introduction. --Journal of the Operational Research Society As an introductory survey it does an admirable job. ! this book is an important guide into the field of credit risk models. Mainly for the practitioner ! It is well written, fairly easy to follow. --Horst Behncke, Zentralblatt MATH

Over the years, Christian Bluhm has worked for Deutsche Bank, McKinsey, HypoVereinsbank's Group Credit Portfolio Management, and Credit Suisse. He earned a Ph.D. in mathematics from the University of Erlangen-Nurnberg. Ludger Overbeck is a professor of probability theory and quantitative finance and risk management in the Institute of Mathematics at the University of Giessen. During his career, he worked for Deutsche Bundesbank, Deutsche Bank, HypoVereinsbank/UniCredit, DZBank, and Commerzbank. He earned a Ph.D. in mathematics from the University of Bonn. Christoph Wagner has worked for Deutsche Bank, Allianz Group Center, UniCredit/HypoVereinsbank, and Allianz Risk Transfer. He earned a Ph.D. in statistical physics from the Technical University of Munich.

This text introduces the foundations of structured credit portfolio modeling. The second edition features additional material on asset correlations, benchmark correlations, risk contributions, spectral risk measures, nonhomogeneous Markov chain approaches, multi-year models, current agency models, single-tranche CDOs, index tranches, as well as new developments in synthetics, new exercises and a supporting website.

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