1997 Fiscal Year Final Research Report Summary
A Study on Valuation Models and Management of Credit Risk
| Project/Area Number |
08453011
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| Research Category |
Grant-in-Aid for Scientific Research (B)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Public finance/Monetary economics
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| Research Institution | University of Tsukuba |
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Principal Investigator |
SUZUKI Hisatoshi Univ.of Tsukuba, Inst.of Policy and Planning Science, Professor, 社会工学系, 教授 (10108219)
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| Co-Investigator(Kenkyū-buntansha) |
YOSHIDA Toshihiro Univ.of Tsukuba.Inst.of Policy and Planning Science, Assistant Professor (until, 社会工学系, 講師 (60251013)
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| Project Period (FY) |
1996 – 1997
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| Keywords | mathematical finance / valuation of risk / credit risk / default of firms / market risk / contingent claims / portfolio / no-arbitrage condition |
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| Research Abstract |
In this research credit risk is defined as the damage on present value of future cash flows due to the probability of not calling in loans, principals of corporate bonds, or payoffs of OTC derivatives contracts, etc. The analyzes are mainly done from mathematical finance aspects, especially in the case with correlation between default structures of firms, while the studies without them have been main streams, not sufficiently capturing the situation of chain reactions of defaults, valuing of debts with collateral or debts with securities.
On the other hand, it requires for firms, which holds portfolios consisting of various kinds of assets as increasing the level and the variety of investment technology, not only management of market risk but also management of credit risk, furthermore management of market and credit risk as whole.
In this paper, (1) valuation models of credit risk including correlation structures of defaults and (2) the possibility of unifying measures of market risk and credit risk are studied.
The following results can be obtained.
(l) A structural model based on the Merton model and a reduced model with no-arbitrage conditions based on the Jarrow and Turnbull model, both with defaults correlation structures can be derived.
(2) Reduced models based on the Jarrow and Turnbull model and the Jarrow, Lando and Turnbull model can be extended to have correlation structures between defaults processes and interest rate movements. Furthermore, the no-arbitrage conditions for the latter can be obtained.
(3) A valuation model of credit risk belonging to the class of the Duffie and Singleton models are proposed, which is appropriate for the total management of market risk and credit risk.
(4) Problems and a direction of unifying measures of market risk and credit risk are discussed.
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