Modelling German Covered Bonds (eBook)

Manuela Spangler works as a quantitative risk analyst for a large asset management company and holds a PhD in mathematics from the University of Augsburg. Prior to her current position, she worked as a risk manager and financial engineer in the banking and insurance sector for various years.

Acknowledgements 6
Contents 7
List of Figures 9
List of Tables 12
Abstract 14
1 Introduction 15
2 Pfandbrief Characteristics 18
2.1 Main Product Features 18
2.2 Risks from an Investor's Perspective 25
2.3 Implications for Modelling 30
3 Credit Risk Models: A Literature Review 32
3.1 Approaches to Credit Risk Modelling 33
3.2 Introduction to Structural Credit Risk Models 34
3.2.1 The Merton Model 34
3.2.2 Extensions of the Merton Model 36
3.2.3 Specification of the Default Barrier 39
3.2.4 The Role of Liquidity 41
3.2.5 Empirical Findings on Model Performance 42
3.3 Bank Default Modelling 43
3.3.1 Funding and Liquidity Management 44
3.3.2 Structural Credit Risk Models for Bank Default 48
3.4 Summary and Conclusion 66
4 The Pfandbrief Model 69
4.1 Distinction of Nine Pfandbrief Scenarios 71
4.2 The Bank's Balance Sheet 75
4.3 Market Environment 81
4.3.1 Risk-Free Interest Rates 81
4.3.2 Asset Creditworthiness 90
4.3.3 Performance of the Bank's Risky Assets 101
4.4 Funding and Liquidity 105
4.4.1 Matching Cover Calculations 105
4.4.2 Bank Funding 108
4.4.3 Cover Pool Funding 114
4.5 Specification of Default Events and Liquidation Payments 117
4.5.1 Bank Default 118
4.5.2 Cover Pool Default 122
4.5.3 Liquidation Payments 127
4.6 Asset Liability Management 142
4.6.1 Funding Strategies 142
4.6.2 Reinvestment Strategies 144
4.6.3 Maintenance of Overcollateralization 148
4.6.4 Liability Payments 152
4.6.5 Balance Sheet Update 154
4.7 Default Parameters 155
5 Model Calibration and Scenario Generation 160
5.1 An Exemplary Balance Sheet Profile 160
5.1.1 Nominals and Maturities 161
5.1.2 Asset Default Parameters and Present Values 168
5.1.3 Further Model Parameters 173
5.2 Calibration of the Market Environment 175
5.2.1 Risk-Free Interest Rates 175
5.2.2 Asset Creditworthiness 187
5.3 Scenario Generation 189
6 Simulation Results 192
6.1 Default Statistics 192
6.2 Analysis of Loss Drivers 197
6.3 Bank and Cover Pool Solvency 203
6.4 Funding and Liquidity 209
6.5 Scenario Quality and Stability of Results 214
6.6 Sensitivity Analyses 218
6.7 Summary of Simulation Results 228
7 Conclusion and Outlook 233
Bibliography 238
Supplementary Tables and Figures 252