Credit risk management is becoming more and more important in recent years. When a company deals with a financial problem, it may not be able to fulfill its financial obligations, which can cause direct and indirect financial losses to shareholders, creditors, investors and other people in the community. Advanced credit risk models that are based on market value include improving credit quality...

The optimal policy that balances the cost of mitigation with the damages from climate change can be assessed by examining the interactions between the socioeconomic system and the climate system. Traditionally, Cost-Benefit Analysis (CBA) is used for this problem but requires an approximate economic evaluation of the totality of climate damages which, in turn, calls for extensive impact assessm...

Loan contracts performance determines the profitability and stability of the financial institutions, and screening the loan applications is a key process in minimizing credit risk. Before making any credit decisions, credit analysis (the assessment of the financial history and financial backgrounds of the borrowers) should be completed as part of the screening process. Good borrowers with low c...

We measure credit risk premia—prices for bearing corporate default risk in excess of expected default losses—using Markit CDS and Moody’s Analytics EDF data. We find dramatic variation over time in credit risk premia, with peaks in 2002, during the global financial crisis of 2008-09, and in the second half of 2011. Even after normalizing these premia by expected default losses, median credit ri...

A firm partially financed by debt is considered. The firm is subject to two types of shocks: macro-shocks modeled as a finite state Markov chain, and idiosyncratic shocks. The dynamics of the latter may depend on the state of the macroeconomy; the state of the economy is determined not only by fundamentals but the market sentiment as well. The lenders are competitive and debt is rolled over unt...

Using the industrial economics approach to the microeconomics of banking we analyze a large bank under credit risk. Our aim is to study how a risky loan portfolio affects optimal bank behavior in the loan and deposit markets, when credit derivatives to hedge credit risk are available. We examine hedging without and with basis risk. In the absence of basis risk the usual separation result is con...