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Overview
Praise for Credit Risk Measurement
New Approaches to Value at Risk and Other Paradigms
Second Edition
"Saunders and Allen provide practitioners a comprehensive picture of the tools available for the notoriously difficult task of quantifying credit risk. Without neglecting the underlying theory, they zero in on the actual technologies being employed, offering unbiased views of their comparative strengths and limitations."
-Martin Fridson, Chief High Yield Strategist, Merrill Lynch & Co.
"Nowhere else can be found such a clear and rigorous presentation of the newest models, both original and second-generation, for analyzing stand-alone and portfolio credit asset risk models. This is a must read for any practitioner or scholar interested in applying or testing the latest entries in the credit risk modeling challenge or for attempting to build and test new approaches."
-Edward I. Altman, Max L. Heine Professor of Finance, NYU Stern School of Business
"A great introduction to the issues and concepts of credit risk management. The first edition offered a remarkably clear, 'big picture' perspective. This edition expands and updates the topics covered."
-Mark Flannery, BankAmerica Eminent Scholar in Finance, University of Florida
"Measuring credit risk accurately has become increasingly important as economies almost worldwide have slowed with an accompanying increase in defaults and default losses. At the same time, the widespread controversies surrounding the proposed changes in the Basel risk weights for bank credit risk exposures have highlighted the complexity of such computations. The second edition of this book makes a timely contribution in describing both the theory underlying credit risk measurement and the alternative approaches for estimating risk exposures empirically. The book should be read by bankers and credit analysts, as well as by bank supervisors and policymakers involved in bank risk regulation."
-George Kaufman, John F. Smith Jr. Professor of Finance and Economics
Loyola University Chicago
"Since the welcome appearance of the first edition of Credit Risk Measurement in 1999, readers from academia as well as the workaday world of finance have benefited from its sweeping overview of the topic and detailed 'how-to' analysis. It is thus reassuring that bankers, insurers, professors, and students alike can again rely on Professors Saunders and Allen for their cogent update of this survival manual. It is now, more than ever, a 'must read.'"
-Manuel Sebastiao, Member of the Board, Bank of Portugal
Synopsis
Credit Risk Measurement
On December 2, 2001, Enron Corporation filed for Chapter 11 bankruptcy protection. At an asset value of $49.53 billion, this was the largest bankruptcy filing in U.S. history to date. At the time, many of the world's most prominent financial institutions had billions of dollars of credit risk exposure to Enron. Adoption of early warning systems that accurately measure credit risk exposure might have alerted these investors in time for them to take action to manage their risk exposure. That is the role of the credit measurement models surveyed in this book. Indeed, you can see at a glance that several of these models-KMV's EDF score and Altman's Z-Score-predicted significant increases in Enron's credit risk exposure long before the bankruptcy filing.
A recent revolution has been brewing in risk measurement and risk management. In the past two years, the art of credit risk measurement has progressed far beyond anyone's expectations-many models are already entering their second generation. Contrary to its relatively dull and routine history, this new generation of credit risk modeling has seen the emergence of new technologies and ideas. The search by the Bank for International Settlements (BIS) to design a new set of international bank capital regulations, scheduled for adoption in 2005, hinges on details of model structure and data availability. Much of this highly technical debate has been inaccessible to the interested practitioner, student, economist, or regulator-until now.
In the fully updated Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms, Second Edition, Anthony Saunders and Linda Allen discuss all of the latest credit risk measurement and modeling techniques. Simplifying many of the technical and analytical details surrounding these models, Saunders and Allen concentrate on the underlying economics and their level of economic intuition to objectively evaluate the new models. Saunders and Allen examine how these new models approach the evaluation of individual borrower and portfolio credit risk exposure, as well as the development of derivative contracts to manage credit risk exposure.
The alternative models include (among others):
* Loans as options: the KMV and Moody's models
* Intensity-based models: KPMG's Loan Analysis System and Kamakura's Risk Manager
* VAR models, including stress testing: CreditMetrics and Algorithmics' Mark-to-Future
* The insurance approach: mortality models and CSFP Credit Risk Plus
* RAROC models
* The BIS proposals for the New Basel Capital Accord updated to 2002
The art and science of credit risk management is the single most important topic in finance today-from the 2002 BIS proposals to cutting-edge risk measurement models known as intensity-based models. To get a jump on these new concepts and tools, you need the best guidance available. With its comprehensive coverage, summary, and comparison of new approaches, Credit Risk Measurement, Second Edition gives you the best opportunity to do so. With clear explanations of often complex material, Credit Risk Measurement, Second Edition is an indispensable resource for bankers, academics and students, economists, and regulators.
Booknews
Saunders (finance, Stern School of Business, New York U.) and Allen (finance, Zicklin School of Business at Baruch College, City U. of New York) examine models for credit risk estimation. Models applicable to both individual borrower and portfolio risk assessment are covered. Introductory chapters explore the advancement of the field since the previous edition two years earlier, traditional approaches, and explain the Basel International Capital Accord of 2002 which seeks to develop a single capital requirement for credit risk across the major banking countries. Remaining chapters focus solely on models. Annotation c. Book News, Inc., Portland, OR (booknews.com)