Risk Management in Finance

4.

4.1.

Sources of Credit Risk

4.1.1.

4.1.2.

Counterparty Risk

4.1.2.1.

Settlement Risk

4.1.2.2.

Pre-settlement Risk

4.1.2.3.

Replacement Cost Risk

4.1.3.

Concentration Risk

4.1.3.1.

Single Name Concentration

4.1.3.2.

Sectoral Concentration

4.1.3.3.

Geographic Concentration

4.1.4.

4.1.4.1.

4.1.4.2.

4.1.4.3.

4.1.5.

4.1.5.1.

General Wrong-Way Risk

4.1.5.2.

Specific Wrong-Way Risk

4.2.

Measuring Credit Risk

4.2.1.

Credit Scoring Models

4.2.1.1.

Qualitative Models

4.2.1.2.

Quantitative Models

4.2.1.3.

4.2.2.

4.2.2.1.

Internal Credit Ratings

4.2.2.2.

External Credit Ratings (Rating Agencies)

4.2.2.3.

Rating Migration

4.2.2.4.

Rating Stability

4.2.3.

Probability of Default (PD)

4.2.3.1.

Point-in-Time PD

4.2.3.2.

Through-the-Cycle PD

4.2.3.3.

4.2.4.

Loss Given Default (LGD)

4.2.4.1.

4.2.4.2.

4.2.4.3.

4.2.5.

Exposure at Default (EAD)

4.2.5.1.

Current Exposure

4.2.5.2.

Potential Future Exposure

4.2.5.3.

Credit Conversion Factors

4.2.6.

Expected Loss (EL)

4.2.7.

Unexpected Loss (UL)

4.2.8.

Credit Value Adjustment (CVA)

4.2.8.1.

Definition and Calculation

4.2.8.2.

Impact on Derivative Pricing

4.2.8.3.

4.2.9.

Portfolio Credit Risk Models

4.2.9.1.

4.2.9.2.

4.2.9.3.

4.2.9.4.

4.3.

Managing Credit Risk

4.3.1.

Credit Analysis and Due Diligence

4.3.1.1.

Financial Statement Analysis

4.3.1.2.

Industry and Sector Analysis

4.3.1.3.

Management Assessment

4.3.1.4.

Covenant Analysis

4.3.2.

Setting Credit Limits

4.3.2.1.

Counterparty Limits

4.3.2.2.

Portfolio Limits

4.3.2.3.

4.3.2.4.

4.3.3.

Collateralization

4.3.3.1.

Types of Collateral

4.3.3.2.

Collateral Valuation and Management

4.3.3.3.

Haircuts and Margin Requirements

4.3.3.4.

Collateral Agreements

4.3.4.

Netting Agreements

4.3.4.1.

Bilateral Netting

4.3.4.2.

Multilateral Netting

4.3.4.3.

Close-out Netting

4.3.5.

Credit Derivatives

4.3.5.1.

Credit Default Swaps (CDS)

4.3.5.1.1.

Structure and Function

4.3.5.1.2.

Uses in Risk Management

4.3.5.1.3.

4.3.5.2.

Total Return Swaps

4.3.5.3.

Credit Linked Notes

4.3.5.4.

Collateralized Debt Obligations (CDO)

4.3.5.4.1.

Structure and Tranching

4.3.5.4.2.

Risk Transfer Mechanisms

4.3.6.

Loan Sales and Securitization

4.3.6.1.

Asset-Backed Securities

4.3.6.2.

Mortgage-Backed Securities

4.3.6.3.

Loan Participations

4.3.7.

Credit Insurance

4.3.7.1.

Trade Credit Insurance

4.3.7.2.

Political Risk Insurance

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