Advanced Numerical Methods (Summer 2008)

Investment Science and Portfolio Analysis

Lecture Note

Homework set

Topic One	Nature of credit risk and credit derivatives
	Default risk and spread risk Product nature of credit derivatives Bond price based and hedge based pricing of credit derivatives
Topic Two	Structural models
	Merton's firm value model Extensions of the structural approach to the pricing of risky debts Counterparty risks of swaps Industrial implementation: KMV model Debt negotiation models and optimal capital structure Default correlations using structural approach
Topic Three	Mathematical preliminaries for the construction of intensity processes Pricing of defaultable claims using the intensity approach Default correlation - binomial models Copula approach for modeling default dependency