Credit risk is the most important of banks’ financial risks. As far as the largest Swedish banking groups are concerned, 60 per cent of their assets consist in lending to the public. Consequently, measures for mitigating credit risk are of significant importance for banks in their risk management. During the financial crisis, credit risk in the financial system has become of focal importance fo...

Banks today are the largest financial institutions around the world, with branches and subsidiaries throughout everyone’s life. However, commercial banks are facing risks when they are operating. Credit risk is one of the most significant risks that banks face, considering that granting credit is one of the main sources of income in commercial banks. Therefore, the management of the risk relate...

debt: major default risks for dc banks, shortage of cash for the lowest-income developing countries (LICs), and uncertainty and high cost of credit for middleincome developing countries (MICs), all require attention; recycling: if OPEC surpluses are not placed in Ides to permit extra imports from des (tn-cycling) Ides will cut their purchases of such imports, and will be driven towards costly b...

We argue that a firm’s aggregate risk is a key determinant of whether it manages its future liquidity needs through cash reserves or bank lines of credit. Banks create liquidity for firms by pooling their idiosyncratic risks. As a result, firms with high aggregate risk find it costly to get credit lines from banks, and opt for cash reserves in spite of higher opportunity costs and liquidity pre...

In this paper, we present an intensity-based common factor model that is used to analyze the valuation of common systematic risks in multi-name credit and equity markets. In particular, we use a hybrid intensity model to price single-name credit instruments such as credit default swaps (CDSs), multi-name credit derivatives such as collateralized debt obligations (CDOs), and equity index options...

The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, but also by directly triggering each other through contagion. Although credit default swaps have radically altered the dynamics of contagion for more than a decade, models quantifying the...

We derive a formula for a Fourier transform of a counting process that describes the arrival of unpredictable events, and we show how this transform facilitates an analytical treatment of a range of valuation, hedging and risk management problems that arise in single name and portfolio credit risk. Example applications include reduced form pricing of credit sensitive securities referenced on si...

Liquid assets play an important role in the financial system. They are generally defined as financial assets, such as cash and government securities, that can be readily used to fund payments, even in stressed market conditions. These assets are central to liquidity and credit risk management in financial markets. They are commonly used as collateral to obtain short-term funding and manage coun...