Module description
The art of credit ratings has evolved and credit ratings have become inextricably tied to pricing and risk management. Credit ratings are used to assess the value of securities held by firms and the amount of capital they must hold. Many investment institutions can only invest into investment-grade rated instruments. This requirement signals continued regulatory interest. A good credit risk system is a bank’s front line defence against default risk. The interest in credit ratings has become even more global and decidedly more urgent.
This module provides an overview of credit ratings, risk analysis and management for various products across different sectors, such as banking, sovereign, corporate and structured finance, combining theory with market practise. It explains the role of rating agencies and goes though the rating process; how credit ratings are assigned and monitored.
It provides knowledge of both the quantitative and qualitative aspects of credit analysis. It presents credit rating methodologies and an overview of securitisation and structured finance technology.
The module puts considerable emphasis on practical applications. It explains how a transaction is put together by an investment bank as an arranger. Then goes through the steps of how it gets rated by the rating agencies and finally distributed in the markets.
The course gives training to students and professionals wishing to pursue a career in credit trading, financial engineering, risk management, structured credit and securitisation, at an investment bank, asset manager, rating agency and regulator; as well as in other sectors where knowledge of credit analysis is required, such as insurance companies, private equity firms, pension, mutual and hedge funds.Further, it gives a unique set of perspectives on the developments following the financial crisis of 2007, sovereign crisis in late 2010 and the current status of regulation as well as of the overall financial market.
Assessment details
Mid-term In-class Test (15%)
Examination (85%)
Educational aims & objectives
- Providing an overview of credit ratings, risk analysis and management for various products across different sectors combining theory with market practise.
- Explaining the role of rating agencies and rating process; how credit ratings are assigned, monitored and their impact in financial markets.
- Providing knowledge of both the quantitative and qualitative aspects of credit analysis. Presenting credit rating methodologies and an overview of securitisation and structured finance technology.
- The module puts considerable emphasis on practical applications. It explains how a transaction is put together by an investment bank as an arranger. Then goes through the steps of how it gets rated by the rating agencies and finally distributed in the market.
Learning outcomes
On the successful completion of the module you should have gained:
- Autonomy and critical sense in the use of studied credit risk methodologies and tools and as a result act with initiative in decision-making as well as accepting full accountability for outcomes.
- Deep and systematic understanding of the drivers of credit risk, how it can be measured and mitigated in practise by taking on board also the well learned current theoretical and methodological approaches.
- Deep and systematic understanding of the purpose, use and impact of credit ratings as well as the effect of credit rating migration in financial markets and institutions.
Teaching pattern
Across the semester teaching is expected to comprise of:
- 20 hours of lectures
- 9 hours of tutorials
You will also be expected to spend time preparing for classes and working on the assessment tasks each week. The combined hours of classes and independent learning should equate to at least 15 hours a week.
Suggested reading list
P. Koulafetis (2017), Credit Risk Management, Theory and Practise, Palgrave Macmillan.
Credit Rating Methodologies and Publications: Sovereign Bond Ratings