Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms, 2nd Edition

Working in the banking industry I was turned on to this book by a colleague and what a colossal waste of time reading this was. The vast majority of this book's models are outdated and if Mr. Saunders was trying to write a historical piece he has accomplished that in spades. Nothing in this book is relevant and it is obvious the esteemed Mr. Saunders lent his name to a very poor book that he probably should have glanced through if not read. Linda Allen should probably get some real world experience because she is wasting people's time with her research.

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)

The most cutting-edge read on the pricing, modeling, and management of credit risk available

The rise of credit risk measurement and the credit derivatives market started in the early 1990s and has grown ever since. For many professionals, understanding credit risk measurement as a discipline is now more important than ever. Credit Risk Measurement, Second Edition has been fully revised to reflect the latest thinking on credit risk measurement and to provide credit risk professionals with a solid understanding of the alternative approaches to credit risk measurement.

This readable guide discusses the latest pricing, modeling, and management techniques available for dealing with credit risk. New chapters highlight the latest generation of credit risk measurement models, including a popular class known as intensity-based models. Credit Risk Measurement, Second Edition also analyzes significant changes in banking regulations that are impacting credit risk measurement at financial institutions. With fresh insights and updated information on the world of credit risk measurement, this book is a must-read reference for all credit risk professionals.

Anthony Saunders (New York, NY) is the John M. Schiff Professor of Finance and Chair of the Department of Finance at the Stern School of Business at New York University. He holds positions on the Board of Academic Consultants of the Federal Reserve Board of Governors as well as the Council of Research Advisors for the Federal National Mortgage Association. He is the editor of the Journal of Banking and Finance and the Journal of Financial Markets, Instruments and Institutions.

Linda Allen (New York, NY) is Professor of Finance at Baruch College and Adjunct Professor of Finance at the Stern School of Business at New York University. She also is author of Capital Markets and Institutions: A Global View (Wiley: 0471130494).

Over the years, financial professionals around the world have looked to the Wiley Finance series and its wide array of bestselling books for the knowledge, insights, and techniques that are essential to success in financial markets. As the pace of change in financial markets and instruments quickens, Wiley Finance continues to respond. With critically acclaimed books by leading thinkers on value investing, risk management, asset allocation, and many other critical subjects, the Wiley Finance series provides the financial community with information they want. Written to provide professionals and individuals with the most current thinking from the best minds in the industry, it is no wonder that the Wiley Finance series is the first and last stop for financial professionals looking to increase their financial expertise.

The most cutting-edge read on the pricing, modeling, and management of credit risk available The rise of credit risk measurement and the credit derivatives market started in the early 1990s and has grown ever since. For many professionals, understanding credit risk measurement as a discipline is now more important than ever. Credit Risk Measurement, Second Edition has been fully revised to reflect the latest thinking on credit risk measurement and to provide credit risk professionals with a solid understanding of the alternative approaches to credit risk measurement. This readable guide discusses the latest pricing, modeling, and management techniques available for dealing with credit risk. New chapters highlight the latest generation of credit risk measurement models, including a popular class known as intensity-based models. Credit Risk Measurement, Second Edition also analyzes significant changes in banking regulations that are impacting credit risk measurement at financial institutions. With fresh insights and updated information on the world of credit risk measurement, this book is a must-read reference for all credit risk professionals. Anthony Saunders (New York, NY) is the John M. Schiff Professor of Finance and Chair of the Department of Finance at the Stern School of Business at New York University. He holds positions on the Board of Academic Consultants of the Federal Reserve Board of Governors as well as the Council of Research Advisors for the Federal National Mortgage Association. He is the editor of the Journal of Banking and Finance and the Journal of Financial Markets, Instruments and Institutions . Linda Allen (New York, NY) is Professor of Finance at Baruch College and Adjunct Professor of Finance at the Stern School of Business at New York University. She also is author of Capital Markets and Institutions: A Global View (Wiley: 0471130494). Over the years, financial professionals around the world have looked to the Wiley Finance series and its wide array of bestselling books for the knowledge, insights, and techniques that are essential to success in financial markets. As the pace of change in financial markets and instruments quickens, Wiley Finance continues to respond. With critically acclaimed books by leading thinkers on value investing, risk management, asset allocation, and many other critical subjects, the Wiley Finance series provides the financial community with information they want. Written to provide professionals and individuals with the most current thinking from the best minds in the industry, it is no wonder that the Wiley Finance series is the first and last stop for financial professionals looking to increase their financial expertise. Why new approaches to credit risk measurement and management? Traditional approaches to credit risk measurement The BIS Basel international bank capital accord : January 2002 Loans as options : the KMV and Moody's models Reduced form models : KPMG's loan analysis system and Kamakura's risk manager The VAR approach : creditmetrics and other models The macro simulation approach : the Mckinsey model and other models The insurance approach : mortality models and the CSFP credit risk plus model A summary and comparison of new internal model approaches Overview of modern portfolio theory and its application to loan portfolios Loan portfolio selection and risk measurement Stress testing credit risk models : algorithmics mark-to-future Risk-adjusted return on capital models Off-balance sheet credit risk Credit derivatives.