Post by Sapphire Capital on Jun 25, 2009 10:11:19 GMT 4
Credit Migration Derivatives - Implementation, Calibration and Pricing
Andreas Andersson
ETH Zurich and University of Zurich; Zurich Cantonal Bank
February 10, 2009
Abstract:
We consider the modelling of credit migration risk and the pricing of migration derivatives. This enlarges the traditional setup where credit risk is based on a specificate migration state, i.e. the default one. To construct a Point-in-Time rating migration matrix as underlying value for the derivative pricing we implement the Regime Shifting Markov Mixture model developed in Andersson (2007) and Andersson and Vanini (2008). To obtain prices of the Credit Migration Derivatives we calibrate our model and provide a comprehensive discussion on the calibration methodology. Using the Credit Migration Derivatives we get estimate of the opportunity loss for banks due to downgrade migrations in their credit portfolio. This opportunity loss accounts to 20 bps of the total notational.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1406087
Andreas Andersson
ETH Zurich and University of Zurich; Zurich Cantonal Bank
February 10, 2009
Abstract:
We consider the modelling of credit migration risk and the pricing of migration derivatives. This enlarges the traditional setup where credit risk is based on a specificate migration state, i.e. the default one. To construct a Point-in-Time rating migration matrix as underlying value for the derivative pricing we implement the Regime Shifting Markov Mixture model developed in Andersson (2007) and Andersson and Vanini (2008). To obtain prices of the Credit Migration Derivatives we calibrate our model and provide a comprehensive discussion on the calibration methodology. Using the Credit Migration Derivatives we get estimate of the opportunity loss for banks due to downgrade migrations in their credit portfolio. This opportunity loss accounts to 20 bps of the total notational.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1406087