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Credit Derivatives in Managing Off Balance Sheet Risks by Banks

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  • Cakir, Murat

Abstract

Credit risk has been a worrying type of risk for financial managers. Fortunately, a recent market development –credit derivatives- has made the credit risk more manageable. The loan portfolio management has become more practicable than it used to be in the past. However, credit derivatives are still not well examined. There are uncertainties about and difficulties in the pricing and portfolio management of credit derivatives due to the non-normality in probability distribution of credit risk. Various models have been developed for credit derivatives pricing. After having drawn the general picture for the credit derivatives, we have studied some recent pricing models in a Das (1999) framework, in this study. Also appended is a an attempt to a step forward for simulating the risk-free rates and spreads, to test how powerful simulation can be in modelling the credit risk and pricing of it. Moreover, with highly developed computer technology, it is possible to make sensitivity analysis under several scenarios, to form imaginary loan portfolios, find their risk exposures, and perform a successful risk management practice.

Suggested Citation

  • Cakir, Murat, 2001. "Credit Derivatives in Managing Off Balance Sheet Risks by Banks," MPRA Paper 55976, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55976
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Credıt Risk; Credit Derivatives; Off Balance Sheet Risk Management;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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