Understanding Systematic and Firm-Specific Components in Credit Risk

Credit risk—the potential that a borrower will fail to make required payments—is the oldest risk in our economy. It may arise in a number of circumstances, for example, a consumer failing to make the minimum payment due on a credit card or a company defaulting on its debt. Our main goal in this summer project is to quantify both systematic—vulnerability to events which affect the whole economy—and firm-specific components in credit risk, and the interaction between them. During a 12-week period, the student is expected to propose a model that allows for both systematic and firm-specific risks, develop an estimation methodology for such a model, along pricing methods for credit-sensitive derivatives. He is also expected to perform the econometric estimation of the model using credit default swaps and give economic interpretations based on the model.

Faculty Supervisor:

Jean-François Bégin

Student:

Partner:

Indian Institute of Technology Kanpur

Discipline:

Mathematics

Sector:

Education

University:

Simon Fraser University

Program: