Learning Outcome Statements

1. Measures of credit risk

a. explain probability of default, loss given default, expected loss, and present value of the expected loss and describe the relative importance of each across the credit spectrum;

2. Traditional credit models

b. explain credit scoring and credit ratings, including why they are called ordinal rankings;

c. explain strengths and weaknesses of credit ratings;

3. Structural models

d. explain structural models of corporate credit risk, including why equity can be viewed as a call option on the company's assets;

e. explain reduced form models of corporate credit risk, including why debt can be valued as the sum of expected discounted cash flows after adjusting for risk;

f. explain assumptions, strengths, and weaknesses of both structural and reduced form models of corporate credit risk;

4. Reduced form models

d. explain structural models of corporate credit risk, including why equity can be viewed as a call option on the company's assets;

e. explain reduced form models of corporate credit risk, including why debt can be valued as the sum of expected discounted cash flows after adjusting for risk;

f. explain assumptions, strengths, and weaknesses of both structural and reduced form models of corporate credit risk;

5. The term structure of credit spreads

g. explain the determinants of the term structure of credit spreads;

h. calculate and interpret the present value of the expected loss on a bond over a given time horizon;

6. Asset-backed securities

i. compare the credit analysis required for asset-backed securities to analysis of corporate debt.