Credit Risk - MAT00067M
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- Department: Mathematics
- Module co-ordinator: Prof. Zdzislaw Brzezniak
- Credit value: 10 credits
- Credit level: M
Academic year of delivery: 2021-22
Module will run
||Spring Term 2021-22
||Summer Term 2021-22
The module aims to acquaint students with modern mathematical theory of credit risk and make them aware of its important applications in post-credit crisis financial markets.
The module will focus on the two mainstream modelling approaches to credit risk, namely structural models (Merton, barrier) and reduced form models, and pricing selected credit risk derivatives.
Module learning outcomes
At the end of the module you should be able to...
- Understand and be able to apply Merton's structural model of credit risk.
- Understand and be able to apply the barrier version of Merton's structural model of credit risk.
- Understand the hazard function model in terms of being able to characterise the lack of arbitrage in such a model
- Be able to price defaultable securities such as defaultable bonds and credit default swaps (CDS) within the hazard function model
- Understand the hazard process model and the role of risk-neutral probability in this model.
- Be able to price defaultable securities and to construct trading strategies within the hazard process model.
Academic and graduate skills
- Master the skills of relating the mathematical models to practical problems in credit risk management.
· Merton’s structural model
· Barrier model
· Hazard function model and no arbitrage
· Defaultable bond pricing with hazard function
· Pricing of securities with hazard function
· Hazard process model
· Pricing of defaultable securities within the hazard process model
||% of module mark
Special assessment rules
||% of module mark
Current Department policy on feedback is available in the student handbook. Coursework and examinations will be marked and returned in accordance with this policy.
M.Capinski and T. Zastawniak: Credit Risk, Mastering Mathematical Finance Series, Cambridge University Press, 2015 (to appear