Market realities have forced many financial institutions (and will force many others in the future) to change the way they manage their portfolios of credit assets. Evidence of this change can be seen in the rapid growth of secondary loan trading, credit derivatives, and loan securitizations. Less obvious–but far more important–is the fact that these institutions, primarily banks, are abandoning the traditional "originate-and-hold" approach to credit, in favor of the "portfolio approach" of an investor.
In Credit Portfolio Management, Charles Smithson clearly defines the most pressing concerns within this evolving arena and provides solid guidance to overcome even the most daunting credit portfolio challenges. Divided into three sections–(I) the credit portfolio management process, (II) tools to manage a portfolio of credit assets, and (III) capital attribution and allocation–this comprehensive guide covers a wide range of issues that credit professionals, from relationship managers and credit analysts to portfolio managers and derivative dealers, must understand.
This book begins with an overview of the revolution in credit, demonstrating that measurement and management of capital is the key to effective portfolio management. It then provides you with an executive education on how the principles of Modern Portfolio Theory (MPT) can be applied to credit portfolios. You will also learn about the data requirements and sources for credit portfolio modeling, including the use of probability of default models like S&P’s CreditModel™, Moody’s RiskCalc™, and Moody’s KMV Credit Monitor®. Credit Portfolio Management quickly moves on to explain the three types of credit portfolio models currently in use: structural models such as the Moody’s KMV Portfolio Manager™ and the RiskMeterics Group’s Credit Manager®, macro-factor models, and actuarial models such as CSFB’s CreditRisk+™.
With a firm understanding of the credit portfolio management process in hand, you’ll be introduced to the tools needed to manage a portfolio of credit assets. Credit Portfolio Management offers in-depth insights and valuable advice on:
- Loan sales and trading–discussing the primary syndication market as well as the secondary loan market
- Credit derivatives–their market, how you can price and effectively utilize them, as well as how you can manage a portfolio of credit assets
- Securitization–a full explanation of the elements of collateralized debt obligations (CDOs), from applications to arbitrage
Market realities have changed the way credit portfolios must be managed. Filled with up-to-the-minute tools and techniques, illustrative charts and graphs, and recent industry studies and surveys, Credit Portfolio Management will help you keep pace with these changes.
About the Author
CHARLES W. SMITHSON is the Managing Partner of Rutter Associates. His career has spanned the gamut, with positions in academia, government, and the private sector. Smithson most recently worked for CIBC, where he created the School of Financial Products. He was formerly Managing Director for Risk Management Research and Education at Chase Manhattan Bank, and Managing Director for Risk Management Research at Continental Bank. The author of numerous articles in professional and academic journals, Smithson is best known as the originator of the "Building Block Approach" to Financial Products. He is the author of five books, including The Handbook of Financial Engineering and Managing Financial Risk (now in its third edition). Smithson was instrumental in the formation of the International Association of Credit Portfolio Managers (IACPM) and served as its first Executive Director. Smithson served as a member of the Working Group for the Global Derivatives Project, sponsored by the Group of Thirty, and on the board of directors of the International Swaps and Derivatives Association (ISDA). Smithson received his PhD in economics from Tulane University.
