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The book offers an overview of credit risk modeling and management.
A three-step approach is adopted with the contents, after
introducing the essential concepts of both mathematics and
finance.Initially the focus is on the modeling of credit risk
parameters mainly at the level of individual debtor and
transaction, after which the book delves into counterparty credit
risk, thus providing the link between credit and market risks. The
second part is aimed at the portfolio level when multiple loans are
pooled and default correlation becomes an important factor to
consider and model. In this respect, the book explains how copulas
help in modeling. The final stage is the macro perspective when the
combination of credit risks related to financial institutions
produces systemic risk and affects overall financial stability.The
entire approach is two-dimensional as well. First, all modeling
steps have replicable programming codes both in R and Matlab. In
this way, the reader can experience the impact of changing the
default probabilities of a given borrower or the weights of a
sector. Second, at each stage, the book discusses the regulatory
environment. This is because, at times, regulation can have
stricter constraints than the outcome of internal models. In
summary, the book guides the reader in modeling and managing credit
risk by providing both the theoretical framework and the empirical
tools necessary for a modern finance professional. In this sense,
the book is aimed at a wide audience in all fields of study: from
quants who want to engage in finance to economists who want to
learn about coding and modern financial engineering.
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