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FRM reading Stulz' Chapter 18: Credit Risks and Credit Derivatives 2017-03-20

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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
David Harper CFA FRM
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