28: Credit Analysis Models

Question 1

Compared to structural models, reduced form models do not:

Answer 1

Explain why default occurs

Question 2

Structural models states that default occurs when the value of the assets at maturity, is:

Answer 2

less than the face value (strike) price
At< X

Question 3

Reduced form models estimate:

Answer 3

default intensity

Question 4

Default intensity is a key input into the reduced form model,
which is the probability of:
&
estimated using:

Answer 4

of default over the next time period
&
estimated using option pricing models

Question 5

Components of Securitized Debt:

Answer 5

1. Collateral Pool
2. Servicer Quality
3. Structure

Question 6

Within the Collateral pool, homogeneity of a pool refers to:

Answer 6

the similarity of assets within the collateral pool

Question 7

Within the Collateral pool, Granularity of a pool refers to:

Answer 7

the transparency of assets within the pool

Question 8

Within the Collateral pool, short term granular & homogeneous finance vehicles are evaluated using:

Answer 8

statistical based approaches

Question 9

Within the Collateral pool, medium term granular & homogeneous finance vehicles are evaluated using:

Answer 9

portfolio based approaches

Question 10

Servicer quality evaluates two types of risks:

Answer 10

Counterparty risk
&
Operational risk

Question 11

Structure determines the:

Answer 11

tranching
including:
credit enhancement & distribution waterfall

Question 12

Expected exposure is the amount of risky bond an investor stands to lose before:

Answer 12

any recovery is factored in

Question 13

Credit score/rating is a type of rank, where (higher or lower) is better?

Answer 13

Ordinal, higher is better