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Introduction to the Analysis of Interest Rate and Credit RisksCredit risks

In: Capital Market Finance

Author

Listed:
  • Patrice Poncet

    (ESSEC Business School)

  • Roland Portait

    (ESSEC Business School)

Abstract

Since interest rate fluctuations are random, the dependency of the prices of fixed-income instruments on these rates induces an interest rate risk. The risk of default on the part of a borrower may add on this risk and justifies the “credit spread” which is a component of the rate charged by the lender. This chapter is an introduction to such interest rates and credit risks, which are revisited more thoroughly in later chapters. The principal factors explaining the sensitivity to interest rates of fixed-income securities and simple quantitative estimates of interest rate risk are discussed first. A simple characterization and modeling of credit risk is then presented.

Suggested Citation

  • Patrice Poncet & Roland Portait, 2022. "Introduction to the Analysis of Interest Rate and Credit RisksCredit risks," Springer Texts in Business and Economics, in: Capital Market Finance, chapter 5, pages 149-176, Springer.
    • Handle: RePEc:spr:sptchp:978-3-030-84600-8_5
    DOI: 10.1007/978-3-030-84600-8_5
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