Chapter 18. Credit Risks and Credit Derivatives [CR–5]
- Using the Merton model, calculate the value of a firm’s debt and equity and the volatility of firm value.
- Explain the relationship between credit spreads, time to maturity, and interest rates.
- Explain the differences between valuing senior and subordinated debt using a contingent claim approach.
- Explain, from a contingent claim perspective, the impact of stochastic interest rates on the valuation of risky bonds, equity, and the risk of default.
- Compare and contrast different approaches to credit risk modeling, such as those related to the Merton model,
- CreditRisk+, CreditMetrics, and the KMV model.
- Assess the credit risks of derivatives.
- Describe a credit derivative, credit default swap, and total return swap.
- Explain how to account for credit risk exposure in valuing a swap