Chapter 9: Credit Risk and Credit Analysis

In this section

• Components of Credit Risk (Default Probability, Loss Given Default)
  Components of Credit Risk (Default Probability, Loss Given Default) (CFA Level 1): Understanding Default Probability (PD), Understanding Loss Given Default (LGD), and Fluctuations in LGD. Key definitions, formulas, and exam tips.
• Yield Spreads and Determinants of Credit Spreads
  Yield Spreads and Determinants of Credit Spreads (CFA Level 1): Which of the following best describes a “yield, Which factor often leads to a higher credit, and widening credit spread usually indicates. Key definitions, formulas, and exam tips.
• Credit Ratings: Agency Methods and Limitations
  Credit Ratings: Agency Methods and Limitations (CFA Level 1): How Credit Rating Agencies Operate, Agency Structures and the Issuer-Pays Model, and Qualitative vs. Quantitative Approaches. Key definitions, formulas, and exam tips.
• Corporate, Municipal, and Sovereign Credit Analysis
  Corporate, Municipal, and Sovereign Credit Analysis (CFA Level 1): Corporate Credit Analysis, Key Financial Metrics, and Qualitative Factors. Key definitions, formulas, and exam tips.
• Distressed Debt Analysis and Recovery Rates
  Distressed Debt Analysis and Recovery Rates (CFA Level 1): Nature of Distressed Debt, Capital Structure Hierarchy and Its Influence on Recovery, and Recovery Rates—Not Always Predictable. Key definitions, formulas, and exam tips.
• Credit Migration and Transition Models
  Credit Migration and Transition Models (CFA Level 1): Nature of Credit Migration, Transition Matrices: A Roadmap for Potential Rating Paths, and Markov Chain Foundation. Key definitions, formulas, and exam tips.
• ESG Integration into Credit Analysis
  ESG Integration into Credit Analysis (CFA Level 1): Influence of Environmental, Social, and Governance Factors, Why ESG Matters for Credit Risk, and Core Components of ESG Analysis. Key definitions, formulas, and exam tips.
• Relationship Between Liquidity Risk and Credit Risk
  Relationship Between Liquidity Risk and Credit Risk (CFA Level 1): Defining Liquidity Risk and Credit Risk and When liquidity risk and credit risk feed on. Key definitions, formulas, and exam tips.
• Systemic Credit Shocks and Contagion Effects
  Systemic Credit Shocks and Contagion Effects (CFA Level 1): Understanding Systemic Risk and Contagion, Interconnectedness of Financial Institutions, and Channels of Transmission. Key definitions, formulas, and exam tips.
• Structural vs. Reduced-Form Credit Risk Models
  Structural vs. Reduced-Form Credit Risk Models (CFA Level 1): Structural Credit Risk Models, Merton Model Basics, and Default Interpretation. Key definitions, formulas, and exam tips.
• Regulatory Capital Requirements and Impact on Credit Markets
  Regulatory Capital Requirements and Impact on Credit Markets (CFA Level 1): Basel Accords in a Nutshell, Tier 1 vs. Tier 2 Capital, and Risk-Weighted Assets and Sector Differentiation. Key definitions, formulas, and exam tips.
• Real-World Examples of Recovery in Cross-Border Defaults
  Real-World Examples of Recovery in Cross-Border Defaults (CFA Level 1): Cross-Border Default: Key Considerations, Diagram: Cross-Border Default Process, and Sovereign Default Case Studies. Key definitions, formulas, and exam tips.
• AI-Driven Credit Risk Modeling and Alternative Data Analysis
  AI-Driven Credit Risk Modeling and Alternative Data Analysis (CFA Level 1): Machine Learning Foundations for Credit Risk and Alternative Data: Expanding the Horizons. Key definitions, formulas, and exam tips.
• Coordination Among Rating Agencies in Global Crises
  Coordination Among Rating Agencies in Global Crises (CFA Level 1): Historical Perspective on Rating Agency Coordination, Why Inconsistent Ratings Harm Markets, and Role of IOSCO in Encouraging Harmonization. Key definitions, formulas, and exam tips.
• CVA, DVA, and Accounting for Derivative Credit Valuation Adjustments
  CVA, DVA, and Accounting for Derivative Credit Valuation Adjustments (CFA Level 1): Understanding CVA, Why CVA Matters, and Understanding DVA. Key definitions, formulas, and exam tips.
• Global Regulatory Divergences in Credit Rating Usage
  Global Regulatory Divergences in Credit Rating Usage (CFA Level 1): Evolving Regulatory Landscape, Europe’s CRA Regulation, and US Regulatory Framework and the SEC. Key definitions, formulas, and exam tips.