To Construct Credit Index and Its Base Correlation: The Cases of Financial and non-Financial Industries
Date Issued
2014
Date
2014
Author(s)
Lin, Ying-Hung
Abstract
There are lots of area which does not have complete credit market. To analyze the credit risk of these area, first we have to construct these credit markets correctly. This article extends the study method of Lee, Chung and Tao (2011). By Moody’s KMV structure model, we can price a credit portfolio similar to CDX. NA. IG by simulation. In order to reduce the variation of simulation results, I used analytic solution of default time and variance reduction method when sampling. Then calculation by J.P. Morgan''s LHP (Large Homogeneous Pool) model, we get the base correlation with respect to each upper attachment point. Finally, we can analyze the credit index, base correlation and the upfront fee for each tranche. The empirical results uses Taiwan''s market data. There are two samples: first is the listed and the OTC financial firms; another sample is the industrial firms of constituent stocks of Taiwan 50 index. It shows that this study method is credible. Moreover, this method also shows the difference impacts of big financial events (such as financial crisis) between financial firms and industrial firms.
Subjects
信用組合
信用指數
違約相關性
基礎相關性
KMV模型
LHP模型
信用風險
Type
thesis
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