July 2018

In this webinar, Vishal Mangla and Sara Jiang describe an extension of the Moody’s Analytics credit portfolio framework to model spread risk along with credit risk.

Specifically, they introduce the notion of stochastic market price of credit risk (“stochastic lambda”), which describes – together with credit migration – spread risk of a credit portfolio.

The analysis based on the framework with stochastic lambda will allow financial institutions to determine portfolio capital, allocate capital to individual exposures, and decompose capital into incremental effects reflecting default, migration, and lambda. The presentation covers theoretical aspects of the framework with stochastic lambda, estimation of parameters, and impact of introducing stochastic lambda on realistic portfolios.

Download the Presentation