market and crdit risk

The intersection of market and credit risk*1

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Robert A. Jarrow1, , a and Stuart M. Turnbull, , b
a Johnston Graduate School of Management, Cornell University, Ithaca, New York, USA
b Canadian Imperial Banck of Commerce, Global Analytics, Market Risk Management Division, BCE Place, Level 11, 161 Bay Street, Toronto, Ont., Canada M5J 2S8
Available online 15 December 1999.
Abstract
Economic theory tells us that market and credit risks are intrinsically related to each other and not separable. We describe the two main approaches to pricing credit risky instruments: the structural approach and the reduced form approach. It is argued that the standard approaches to credit risk management – CreditMetrics, CreditRisk+ and KMV – are of limited value when applied to portfolios of interest rate sensitive instruments and in measuring market and credit risk.
Empirically returns on high yield bonds have a higher correlation with equity index returns and a lower correlation with Treasury bond index returns than do low yield bonds. Also, macro economic variables appear to influence the aggregate rate of business failures. The CreditMetrics, CreditRisk+ and KMV methodologies cannot reproduce these empirical observations given their constant interest rate assumption. However, we can incorporate these empirical observations into the reduced form of Jarrow and Turnbull (1995b). Drawing the analogy. Risk 5, 63–70 model. Here default probabilities are correlated due to their dependence on common economic factors. Default risk and recovery rate uncertainty may not be the sole determinants of the credit spread. We show how to incorporate a convenience yield as one of the determinants of the credit spread.
For credit risk management, the time horizon is typically one year or longer. This has two important implications, since the standard approximations do not apply over a one year horizon. First, we must use pricing models for risk management. Some practitioners have taken a different approach than academics in the pricing of credit risky bonds. In the event of default, a bond holder is legally entitled to accrued interest plus principal. We discuss the implications of this fact for pricing. Second, it is necessary to keep track of two probability measures: the martingale probability for pricing and the natural probability for value-at-risk. We discuss the benefits of keeping track of these two measures.
Author Keywords: Credit risk modeling; Pricing; Default probabilities
JEL classification codes: G28; G33; G2
Article Outline
1. Introduction
2. Pricing credit risky instruments
2.1. Structural approach
2.2. Reduced form approach
3. Empirical evidence
4. The reduced form model of Jarrow and Turnbull
4.1. Two factor model
4.2. Correlation
4.3. Claims of bond holders
4.3.1. Risky zero-coupon bonds
4.3.2. Credit risky coupon bonds
4.4. Convenience yields on treasury securities
4.5. Change of probability measure
5. Summary
6. For further reading
Acknowledgements
Appendix A. Two factor model
References
Corresponding author. Tel.: +1-416-956-6973; fax: +1-416-594-8528
*1 The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Canadian Imperial Bank of Commerce.
1 Tel.: +1-607-255-4729.
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The Lowdown on the Orchard Bank Secured Credit Card

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The Lowdown on the Orchard Bank Secured Credit Card

Author: Eric Wasselman

When your credit history is proving to be a hindrance to your financial well-being, perhaps it is time for you to get a secured credit card. One of the cards worth your consideration would be the Orchard Bank MasterCard secured card issued by the HSBC Bank of Nevada.

This card targets customers with poor or limited credit ratings, and aids them towards improving their credit histories. A secured credit card works by requiring the card holder to deposit cash into their credit card account prior to utilization. This way, this credit card prevents its card owners from incurring more debt whilst helping them re-establish their credit history.

An additional advantage unique to this card is that the deposits in the account are paid interests by the bank. In the effort to establish a healthy credit rating, customers must bear in mind that late payments must be avoided, and they have to be aware of the current annual percentage rate for the card as the APR of the Orchard Bank Secured Credit card is based on a variable rate. Although, the regular rate now stands at 15.90%, the actual rate is dependent on the Prime Rate. APRs for cash advances are higher than most cards at 23.40%, with a minimum rate of 19.99%.

Interestingly enough, the annual fees for the Orchard Bank Secured Credit Card is lower than other most unsecured credit cards. Balances above $1000 will only incur fees of $35 whilst card holders who have charged more than their credit limits will only be charged only $29. Also, there are periodic reviews of the credit limit for each account, so regular payments will enable the card holder to obtain higher credit limits and at the same time improving their credit history.

Finally, the Orchard Bank secured credit card also offers a lot of perks not evident in other competing credit cards. These would include Internet services, emergency replacements for stolen cards as well as numerous protection services against fraud and identity theft.

Article Source: http://www.articlesbase.com/credit-articles/the-lowdown-on-the-orchard-bank-secured-credit-card-34143.html

About the Author:
For more information or to apply for the Orchard Bank Secured Credit Card, Eric Wasselman recommends Find Credit Cards. See http://www.findcreditcards.org/card/orchard-bank-mastercard-secured.php .

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Details Of The Orchard Bank Secured Credit Card Application

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Details Of The Orchard Bank Secured Credit Card Application

Author: Joshua Shapiro

When someone has a limited or a rather poor credit history, they may want to look into the Orchard Bank Secured Credit Card. Offered through HSBC Bank Nevada, N.A. this MasterCard is just what those who are looking to restore and re-establish their credit could use.

The annual fee of the Orchard Bank Secured Credit Card is quite reasonable at $35. The variable APR of 15.90% is an average rate for such a card. The variable APR on cash advances, however, jumps significantly to 23.40%! The finance charges are applied to any purchases that are not paid for within the first 25 days, and there are charges for other services like cash advances. The maximum deposit allowed on the Orchard Bank Secured Credit Card is $15,000, and the minimum deposit is $200. Late payment and over the limit fees are $29 each time they occur.

One thing to note when you are looking at the Orchard Back Secured Credit Card: minimum caps do apply to the APRs for both purchases and cash advances. No matter what the Prime Rate is, even if it falls to low levels, the APR on this card will not go below the minimum rate.

There are perks to the Orchard Bank Secured Credit Card that you won't always find on cards of this type, though. The card provides cardholders with services and benefits like online account access, emergency card replacement, and other various fraud protection services. You also do not have to pay an application fee when you apply for this MasterCard.

So, if you plan to pay off your balances, this card can help you to build or re-establish a positive credit history. With a low annual fee and no application fee, cardholders can expect to pay $35 for their Orchard Bank Secured Card every twelve months.

Article Source: http://www.articlesbase.com/credit-articles/details-of-the-orchard-bank-secured-credit-card-application-35937.html

About the Author:
To obtain the Orchard Bank Secured Credit Card application, Joshua Shapiro recommends Find Credit Cards. See http://www.findcreditcards.org/card/orchard-bank-mastercard-secured.php for more information.

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Bank Secured Credit Card Offers

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Bank Secured Credit Card Offers

Author: Ricky Lim

Bank secured credit cards can be termed as small plastics that are issued to the clients for buying goods and services based on a promise from the credit card holder to pay at a later date mostly by the end of the month. Based on the above the credit card issuer gives a line of credit to his clients who in tern can use the credit card to get advanced cash make payments to merchants. Bank secured credit card are very different from charge cards for the charge card the payments need to be done in full every month. Whereas secured credit card allows the client to play around their balance depending on the interest that will be charged. Most of these credit cards you will find being given by unions or banks. Bank secured credit cards can only be used after approval by the credit provider. Once that is done and you are qualified you can use your bank secured credit card to make purchases from merchants that accept the card. After a purchase has been done, the card hold will be required to provide identification then he or she will be issued with a small slip which in return will sign as prove of purchase. In these current times you will get that merchants will accept verbal authorization through the telephone and the internet. The bank secured credit card users are entitled to a statement of account after every end of the month so that it can reflect to the user the break down of what he or she purchased in the course of the month. If the credit card holder does not dispute with the charges brought forth, then the credit holder must pay for the services when the date is due. Credit card users can authorize the bank to deduct some of the finances from there back account automatically. Interest charges are over looked when the card holders pay there dues in full every month. However the credit card issuer will penalize credit card holder in full for interest that is outstanding if the balance is not paid in the designated time. Credit card holders are given grace period before interest is charged to the account. In addition credit holders prefer to carry cards rather than cash for security purposes and there personal safety.

Article Source: http://www.articlesbase.com/credit-articles/bank-secured-credit-card-offers-1455612.html

About the Author:
Discover where to apply for bank secured credit cards online. Learn where to get low interest secured credit card offers at my site.

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