Seminario di Finanza Matematica: Risk Measures for Credit Trading Risk

Giovedì 23 Maggio 2013, ore 15:00 - Aula 2BC30 - Aldo Nassigh


Seminario di Finanza Matematica

Giovedì 23 Maggio 2013 alle ore 15:00 in Aula 2BC30, il Dott. Aldo Nassigh (UniCredit) terrà un seminario intitolato "Risk Measures for Credit Trading Risk".

Default and credit migration risk was treated as negligible for a long time by traders, with an investment horizon of at most few days and portfolios exposed mainly to high credit quality obligors. This is consistent with the 'Constant Level of Risk' assumption according to which, in case of deterioration of the creditworthiness of the obligor, exposures with high credit quality would have been replaced with the goal of moving the asset allocation back to the original risk profile. If perfect market liquidity and continuous Brownian motion for asset prices are granted, losses induced by the frequent rebalancing of the portfolio can indeed be neglected. The rise and blow up of the credit trading bubble showed the shortcomings of such approach. The proper evaluation of default and credit migration risk in the trading business translates into the call for modeling portfolio credit risk in the framework of short-term simulations and mark-to-market evaluation.

Aim of the seminar is to give an update on recent developments regarding modeling and to raise some critical and unresolved issues as: the difficulty in adapting to this problem the mainstream treatment of portfolio credit risk by continuous-time Markov Chains applied to the rating migration process; the lack of an unambiguous approach to the estimation of asset correlations; the duality between market-implied and rating-agency ratings.