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The derivatives considered in Chap.  14 are mainly concerned with market risk. This chapter deals with another important category of risk for financial institutions: credit risk, also known as default risk. In this chapter, we present various stochastic models of credit risk. The chapter begins with an introduction to credit risk in Sect. 15.1. Then, we introduce the idea of modeling credit risk using stochastic models in Sect. 15.2, in particular, the reduced-form models and structural models in Sects. 15.2.1 and 15.2.2, respectively. Section 15.3 presents the pricing of European call option when the option writer can default on obligations. Finally, the models for the dynamics of credit ratings are presented in Sect. 15.4.

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Applications to Finance—Credit Risk

  • 章节

  • 发表日期：

    2025年

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  • Dharmaraja Selvamuthu

摘要

The derivatives considered in Chap.  14 are mainly concerned with market risk. This chapter deals with another important category of risk for financial institutions: credit risk, also known as default risk. In this chapter, we present various stochastic models of credit risk. The chapter begins with an introduction to credit risk in Sect. 15.1. Then, we introduce the idea of modeling credit risk using stochastic models in Sect. 15.2, in particular, the reduced-form models and structural models in Sects. 15.2.1 and 15.2.2, respectively. Section 15.3 presents the pricing of European call option when the option writer can default on obligations. Finally, the models for the dynamics of credit ratings are presented in Sect. 15.4.