Corporate Credit Risk Research Articles

Corporate Credit Risk Valuation Using Option Pricing Theory Methodology - A Practical Application to a Banking Credit Portfolio

This paper explores the application of the advances in finance by using option pricing methodology in the evaluation of corporate credit risk in a sample banking credit portfolio. More specifically, the goals pursued in the paper are the valuation of the absolute value of each credit position, and hence what is the corresponding economic credit risk, the valuation of different types of credit positions (with different maturities, covenants, repayment schedules, guarantees, interest-rate resetting processes and renegotiation aspects), the impact of refinancing risk in valuation, the valuation of the credit portfolio diversification effect on the overall credit portfolio, and the determination of the adequate economic capital to cover the expected losses (credit risk) of the portfolio. The valuation technique is based in a risk-neutral valuation binomial tree process applied to the firm value from which all contingent claims on the firm can be valued. The binomial approach is revealed to be a powerful method to value complex and multiple debt issues on the same firm.

Exploring for the Determinants of Credit Risk in Credit Default Swap Transaction Data

We investigate the influence of various fundamental on a cross-section of credit default swap rates. Credit default swap rates can be seen as an alternative proxy for credit risk. Therefore our findings are relevant not only for the understanding of credit default swaps but for credit risk in general. The fundamental include ratings, interest rate data and stock market related information such as variance and leverage (so called structural variables). We test for the stability of the influence of the different fundamental along several lines. We find evidence that most of the predicted by credit risk pricing theories have a significant impact on the observed levels of credit default prices. We also provide an international analysis of corporate credit risk, as half of our corporate sample is not US based, as well as some results on sovereign credit risk. Using this information we are able to explain a significant portion of the cross-sectional variation in our sample with adjusted R2 reaching 82% using the predicted by classical theoretical models. However there are important behavioral differences between high rated and low rated underlyings, sovereign and corporate underlyings and underlyings from different markets (US vs no US). We analyze these differences. Strong results show the importance of considering so called structural variables as well as stochastic interest rates along with classical ratings when pricing credit risk overall.

Corporate Credit-Risk Dynamics

The lack of widely available and comprehensive data of default activity on the corporate level has encouraged the advance of theories of corporate credit risk far beyond related empirical work. This article addresses this deficit by examining a unique data set—corporate bond defaults and credit ratings compiled by Moody's Investors Service since 1920. The article investigates the time inhomogeneity of company default risk—that is, the pattern in which the risk of default for a company changes over time. The empirical analysis addresses company default risk within a regression framework of competing risks, or hazards. The analysis identifies (and quantifies) variations in default risk with macroeconomic conditions, with industries, and through time—an important characterization for many approaches to measuring and managing credit risk.

Corporate Credit Analysis: Latin America

Analyzing corporate credit risk in Latin America has taken on increasing importance since issuers and investors have been rocked by repeated crises in emerging markets. The comprehensive framework recommended here for analyzing the creditworthiness of Latin American corporate borrowers incorporates sovereign risk assessment and evaluation of the borrower’s competitive and financial positions.This presentation comes from the Credit Analysis Around the World conference held in Chicago, Illinois, on February 10, 1998.

Corporate Credit Risk and Reward

<h3>Abstract</h3> <h3>Background</h3> Although electrolyte abnormalities are common among patients with COVID-19, very little has been reported on magnesium homeostasis in these patients. Here we report the incidence of hypermagnesemia, and its association with outcomes among patients admitted with COVID-19. <h3>Methods</h3> We retrospectively identified all patients with a positive test result for SARS-CoV-2 who were admitted to a large quaternary care center in New York City in spring 2020. Details of the patients’ demographics and hospital course were obtained retrospectively from medical records. Patients were defined as having hypermagnesemia if their median magnesium over the course of their hospitalization was &gt;2.4 mg/dl. <h3>Results</h3> A total of 1685 patients hospitalized with COVID-19 had their magnesium levels checked during their hospitalization, and were included in the final study cohort, among whom 355 (21%) had hypermagnesemia. Patients who were hypermagnesemic had a higher incidence of shock requiring pressors (35% vs 27%, <i>P</i>&lt;0.01), respiratory failure requiring mechanical ventilation (28% vs 21%, <i>P</i>=0.01), AKI (65% vs 50%, <i>P</i>&lt;0.001), and AKI severe enough to require renal replacement therapy (18% vs 5%, <i>P</i>&lt;0.001). In an adjusted multivariable model, hypermagnesemia was observed more commonly with increasing age, male sex, AKI requiring RRT, hyperkalemia, and higher CPK. Survival probability at 30 days was 34% for the patients with hypermagnesemia, compared with 65% for patients without hypermagnesemia. An adjusted multivariable time to event analysis identified an increased risk of mortality with older age, need for vasopressors, higher C-reactive protein levels, and hypermagnesemia (HR, 2.03; 95% CI, 1.63 to 2.54, <i>P</i>&lt;0.001). <h3>Conclusions</h3> In conclusion, we identified an association between hypermagnesemia among patients hospitalized with COVID-19 and increased mortality. Although the exact mechanism of this relationship remains unclear, hypermagnesemia potentially represents increased cell turnover and higher severity of illness, which is frequently associated with more severe forms of AKI.

The prognosis and surveillance of risks from commercial credit borrowers

This paper reports the main results of an empirical research project dealing with the prognosis and surveillance of corporate credit risks. In the course of the research programme both quantitative (balance sheet analysis, current accounts data analysis) and qualitative (assessment of management) methods were applied. Each of the three parts of the project is independently usable However, the combined application of the three approaches avoids deficiencies of using only one of the components and improves the early detection of credit risks.

Determinants of Risk Premiums on Corporate Bonds

ECONOMISTS have long agreed that the rate of interest on a loan depends on the risks the lender incurs. But how lenders estimate these risks has been left largely to conjecture. This paper presents and tests a hypothesis about the determinants of risk premiums on corporate bonds. By risk premium is meant the difference between the market yield on a bond and the corresponding pure rate of interest. My hypothesis is as follows: (1) The average risk premium on a firm's bonds depends first on the risk that the firm will default on its bonds and second on their marketability. (2) The "risk of default" can be estimated by a function of three variables: the coefficient of variation of the firm's net income over the last