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: 2019-20

Related modules

Co-requisite modules

  • None

Prohibited combinations

  • None

Module will run

Occurrence Teaching cycle
A Spring Term 2019-20

Module aims

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.

Module content

Syllabus:

·         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

Assessment

Task Length % of module mark
University - closed examination
Credit Risk
2 hours 100

Special assessment rules

None

Reassessment

Task Length % of module mark
University - closed examination
Credit Risk
2 hours 100

Module feedback

Current Department policy on feedback is available in the student handbook. Coursework and examinations will be marked and returned in accordance with this policy.

Indicative reading

M.Capinski and T. Zastawniak: Credit Risk, Mastering Mathematical Finance Series, Cambridge University Press, 2015 (to appear



The information on this page is indicative of the module that is currently on offer. The University is constantly exploring ways to enhance and improve its degree programmes and therefore reserves the right to make variations to the content and method of delivery of modules, and to discontinue modules, if such action is reasonably considered to be necessary by the University. Where appropriate, the University will notify and consult with affected students in advance about any changes that are required in line with the University's policy on the Approval of Modifications to Existing Taught Programmes of Study.