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Module R9 · VRM 4, VRM 6

Credit measured

Ratings and transition matrices, conditional and cumulative default probabilities, hazard rates in every form, then expected and unexpected loss, portfolio loss volatility and the Vasicek one-factor model.

2 lessons · 7 interactive figures · 14 exercises

1. 1Ratings, transitions and hazard rates
   A transition matrix is a set of conditional probabilities. A hazard rate is the same idea taken to the limit of a short interval.7 exercises
2. 2Expected loss, unexpected loss and the Vasicek model
   Expected loss is priced into the spread. Unexpected loss is what capital is for. Vasicek gives the 99.9% default rate that regulators use.7 exercises