This work empirically examines six structural models of the term structure of credit risk spreads: Merton (1974), Longstaff & Schwartz (1995) (with and without stochastic interest rates), Leland & Toft (1996), Collin-Dufresne & Goldstein (2001), and a constant elasticity of variance model. The conventional approach to testing structural models has involved the use of observable data to proxy the latent capital structure process, which may introduce additional specification error. This study extends Jones, Mason & Rosenfeld (1983) and Eom, Helwege & Huang (2004) by using implicit estimation of key model parameters resulting in an improved level of model fit. Unlike prior studies, the models are fitted from the observed dynamic term structure of firm-specific credit spreads, thereby providing a pure test of model specification. The models are implemented by adapting the method of Duffee (1999) to structural credit models, thereby treating the capital structure process is truly latent, and simultaneously enforcing cross-sectional and time-series model constraints. Quasi-maximum likelihood parameter estimates of the capital structure process are obtained via the extended Kalman filter applied to actual market trade prices on 32 firms and 200 bonds for the period 1994 to 2000. / We find that including an allowance for time-variation in the market liquidity premium improves model specification. A simple extension of the Merton (1974) model is found to have the greatest prediction accuracy, although all models performed with similar prediction errors. At between 28.8 to 34.4 percent, the root mean squared error of the credit spread prediction is comparable with reduced-form models. Unlike Eom, Helwege & Huang (2004) we do not find a wide dispersion in model prediction errors, as evidenced by an across model average mean absolute percentage error of 22 percent. However, in support of prior studies we find an overall tendency for slight underprediction, with the mean percentage prediction error of between -6.2 and -8.7 percent. Underprediction is greatest with short remaining bond tenor and low rating. Credit spread prediction errors across all models are non-normal, and fatter tailed than expected, with autocorrelation evident in their time series. / More complex models did not outperform the extended Merton (1974) model; in particular stochastic interest-rate and early default accompanied by an exogenous write-down rate appear to add little to model accuracy. However, the inclusion of solvency ratio mean-reversion in the Collin-Dufresne & Goldstein (2001) model results in the most realistic latent solvency dynamics as measured by its implied levels of asset volatility, default boundary level, and mean-reversion rate. The extended Merton (1974) is found to imply asset volatility levels that are too high on average when compared to observed firm equity volatility. / We find that the extended Merton (1974) and the Collin-Dufresne & Goldstein (2001) models account for approximately 43 percent of the credit spread on average. For BB rated trades, the explained proportion rises to 55 to 60 percent. For investment grade trades, our results suggest that the amount of the credit spread that is default related is approximately double the previous estimate of Huang & Huang (2003). / Finally, we find evidence that the prediction errors are related to market-wide factors exogenous to the models. The percentage prediction errors are positively related to the VIX and change in GDP, and negatively related to the Refcorp-Treasury spread.

Stress testing is a macro-prudential analytical method of assessing the financial system's resilience to adverse events. This thesis describes the methodology of the stress tests and illustrates the stress testing for credit and market risks on the real bank-by-bank data in the two Balkan countries: Croatia and Serbia. Credit risk is captured by the macroeconomic credit risk models that estimate the default rates of the corporate and the household sectors. Setting-up the framework for the countries that were not much covered in former studies and that face the limited availability of data has been the main challenge of the thesis. The outcome can help to reveal possible risks to financial stability. The methods described in the thesis can be further developed and applied to the emerging markets that suffer from the similar data limitations. JEL Classification: E37, G21, G28 Keywords: banking, credit risk, default rate, macro stress testing, market risk

A Constant Proportion Debt Obligation is a credit derivative which has been introduced to generate a surplus return over a riskless market return. The surplus payments should be obtained by synthetically investing in a risky asset (such as a credit index) and using a linear leverage strategy which is capped for bounding the risk. In this thesis, we investigate two approaches for investigation of constant proportion debt obligations. First, we search for an optimal leverage strategy which minimises the mean-square distance between the final payment and the final wealth of constant proportion debt obligation by the use of optimal control methods. We show that the optimal leverage function for constant proportion debt obligations in a mean-square sense coincides with the one used in practice for geometric type diffusion processes. However, the optimal strategy will lead to a shortfall for some cases. The second approach of this thesis is to develop a pricing formula for constant proportion debt obligations. To do so, we consider both the early defaults and the default on the final payoff features of constant proportion debt obligations. We observe that a constant proportion debt obligation can be modelled as a barrier option with rebate. In this respect, given the knowledge on barrier options, the pricing equation is derived for a particular leverage strategy.

This thesis deals with the provision of credit supply, especially the risk associated with their delivery. The key part of this work is a model that evaluates the level of supply risk using fuzzy logic. Model evaluation of the supply risk is introduced to selected customers selected companies.

This thesis investigates correlations and linkages in credit risk that widely exist in all sectors of the financial markets. The main body of this thesis is constructed around four empirical chapters. I started with extending two main issues focused by earlier empirical studies on credit derivatives markets: the determinants of CDS spreads and the relationship between CDS spreads and bond yield spreads, with a special focus on the effect of the subprime crisis. By having observed that the linear relationship can not fully explain the variation in CDS spreads, the third empirical chapter investigated the dependence structure between CDS spread changes and market variables using a nonlinear copula method. The last chapter investigated the relationship between the CDS spread and another credit spread - the TED spread, in that a MVGARCH model and twelve copulas are set forth including three time varying copulas. The results of this thesis greatly enhanced our understanding about the effect of the subprime crisis on the credit default swap market, upon which a set of useful practical suggestions are made to policy makers and market participants.

This diploma thesis "Methods of risk aggregation on financial markets" introduces all kinds of risk that are present on the financial markets. In the first part there are explained the ways and methods of measurement of these risks. Next there are shown the methods of aggregation of credit, market and operational risks. One of these methods are copula functions which are constructed in practical part of this thesis.

Subject of my thesis is a credit risk in the czech banking environment. It consists of five chapters. First one contains description of basic risks banks are exposed to. The next one addresses the credit risk itself and its management, including determination of credit policy and the process of credit granting. Related to this topic is hedging, in broader sense also including provisioning and reserves creation. Third chapter is about credit derivatives, via which the credit risk can be reduced. Closely related to this topic is a securitisation process and it's products. Fourth chapter deals with regulation, which is an essential part of the banking sector nowadays. I focus primarily on Basel II and its credit risk part. In the final chapter I describe credit risk management of one of the biggest czech banks, Ceska sporitelna, which granted most credits in 2010.

Project finance has become a vital financing vehicle for undertaking capital-intensive and infrastructure investments. In 2017 alone, the value of deals signed using project finance was estimated at approximately $229 billion. Despite its increasing importance, little is known regarding the impact of project-level, and country characteristics on the loan terms. This thesis proceeds in examining these determinants along three empirical essays. The first essay (Chapter 3) focuses on how domestic lead arrangers certification (in emerging markets) impact the pricing of project finance loans. Using a sample 1270 project finance loan tranches signed between 1998 and 2011, and worth over $300 billion, the chapter posits that domestic lead arrangers certification reduce search and information cost, which in turn, reduces the financing cost. The results, after controlling for endogeneity of certification decision, indicate a reduction of 47 basis points in the spread offered on PF loans. The magnitude of this reduction differs across industries, geographic region, and income classification of the project countries. The second essay (Chapter 4) examines the relationship between PF contractual structures and loan outcomes, using a sample of 5872 project finance loan tranches signed between 1998 and 2013, and worth approximately $1.2 trillion. The chapter hypothesises that (i) non financial contracts (NFCs) (that is, contracts used to manage the various project functions), reduces overall project risk, (ii) the involvement of project sponsors as key counterparties to the non-financial contracts is an additional signal of project s potential worth, and (iii) the effects observed in (i and ii) are stronger, if sponsor counterparties have verifiable credit ratings. After matching loan tranches with NFCs to those without, the results indicate that the use of NFCs reduce both the loan spreads and leverage ratios. This impact is higher if the sponsor counterparties are credit-rated. The results are also stronger for developing countries. The third essay examines the impact of country-level institutions on project finance loan spread and leverage ratio, using a sample of 3,362 loan tranches signed between the year 1998 - 2012. The chapter investigates whether political and legal institutions are substitutes (or complements), that is, if improvement in one absorbs the weakness of the other, and vice versa. Further, the essay examines if project finance network of contracts substitutes for these institutions. The results indicate that political and legal institutions are substitutes. Specifically, improvements in political institutions lead to a reduction in both the loan spread and leverage ratio for countries with weak legal and governance institutions. The chapter also finds that where NFCs are included in PF, the impact of political institutions on loan spread reduces. On the other hand, the impact of political institutions on leverage ratio is higher when NFCs are used. The findings from the three research chapters provide interesting insights on how lenders and sponsors create value through contract design.

The theoretical part of thesis covers consumer credit, particular parts of credit process and credit registers. Analysis of credit risk management in a bank of concern, quality of credit portfolio and suggestion of changes in rating of retail receivables are dealt with in the practical part.

Credit risk measurement and management has great importance in credit market. Credit derivative products are the major hedging instruments in this market and credit default swap contracts (CDSs) are the most common type of these instruments. As observed in credit crunch (credit crisis) that has started from the United States and expanded all over the world, especially crisis of Iceland, CDS premiums (prices) are better indicative of credit risk than credit ratings. Therefore, CDSs are important indicators for credit risk of an obligor and thus these products should be understood by market participants well enough. In this thesis, initially, advanced credit risk models firsts, the structural (firm value) models, Merton Model and Black-Cox constant barrier model, and the intensity-based (reduced-form) models, Jarrow-Turnbull and Cox models, are studied. For each credit risk model studied, survival probabilities are calculated. After explaining the basic structure of a single name CDS contract, by the help of the general pricing formula of CDS that result from the equality of in and out cash flows of these contracts, CDS price for each structural models (Merton model and Black-Cox constant barrier model) and CDS price for general type of intensity based models are obtained. Before the conclusion, default intensities are obtained from the distribution functions of default under two basic structural models / Merton and Black-Cox constant barrier. Finally, we conclude our work with some inferences and proposals.