No abstract

This paper proposes a new model for evaluating credit risk of a portfolio consisting of interest rate sensitive assets. Our model is distinguished from existing risk valuation models such as CreditMetrics™ or CREDITRISK+ by (1) the dynamics of the default-free interest rate as well as hazard rate processes of defaultable assets are described by stochastic differential equations; and (2) prices of individual assets are evaluated by the single risk-neutral valuation framework. It is then possible to evaluate not only credit risk but also market risk of the portfolio in a synthetic manner. It is shown that value at risk (VaR) of the portfolio is approximately evaluated as a closed form solution.

No abstract

No abstract

No abstract