Credit-Curves / Credit-Default-Curves
The Credit Curve Module is your interface to create,
import, edit, transform and
convert one type of default Probability (Default,
Hazards, Survival, Marginal,..) over multiple Simulation Horizons.
The Credit Curve Module provides two virtual base underlying representations. If you are using the Standalone version of Risksvr™ you can change your base representation and the assumptions that are followed in the Engine Specification Section.
One base representation merely assumes all
fed probabilities are converted to one
probability base in order to facilitate bootstrapping.
If you choose Default probabilities, all credit curves are converted internally to Discrete One Day Forward Defaults which are then accumulated to their respective vertices according the a power series.
If you choose Hazards, the credit curve is converted to yearly probabilities. In most cases, there is not conversion as probabilities are expressed in years). The Hazard is then interpolated according to the Cumulative Hazards and the outstanding Hazard rate left up to the given time period of the simulation horizon through exponentiation.
Although you can define each point in
time as a different probability, the engine converts any type of probability to
another transparently.
For Further information see Credit-Default-Curve EDF - Hazards- Survival Manager
Credit Curves have different Time Scales according to the Base Credit Curve Defined
The EDF Timeline in the Credit Curve
Module defines the vertices of each default probability.
By default Vertices are defined as tenors with 1 year intervals
By default Risksvr uses the EDF Timeline scheme.
You can however change this to
the Survival Timeline in the engine specification setup screen.
If Hazards, Cumulative Hazards or Survival are used the Timeline is switched to Survival.
If no Timeline is Defined, the Engine assumes default probabilities are one (1) year probabilities.
For example, for a given Rating Rank, if you have defined 5 probabilities and NO TimeLine is defined, the engine assumes you have defined a 1,2,3,4,5 Year probability respectively.
If No Timeline is Defined, the Engine assumes default probabilities are 1 Year Probabilities.
For example, for a given Rating Rank, if you have defined 5 probabilities and NO TimeLine is defined, the engine will assume you have defined a 0 1,2,3,4 if the first probability is 1 or (100%) or 1,2,3,4,5 if the probability is less than 1.0 (100%).
The Engine will then Convert these probabilities according to the simulation horizon defined.
The Simulation Horizon is the Time horizon Sought. If you are carrying out a multi-stepped simulation over say 1 day 3 months 1 year and 2 years, then your default probabilities should be adjusted to fit the simulation horizon.
To accept all rating systems, the module requires that each Rating label be assigned a rank. By default, the module will assign Rating Rank in the same order they are provided for a system. You can however override this mechanism by either providing the Rating Rank in the ASCII import file or through manual selection in the graphical user interface.
If the Rating Rank is ordered differently, you can requested that Transitions and curves be re-ordered according to the rank defined.
Snapshot: If you save your data as a snapshot, the Data will be saved in your shared memory realm and as a persisted stream. however it is NOT saved in the database. You will not be able to edit the data again, except if you import the data from shared memory into an ascii file and then import the ascii file into the credit curve module.
The main point of the snapshot is to provide an easy What-if route without Database maintenance.
Save in Repository: You can save one (guest users) or multiple templates (customers) into your realm for further retrieval. If you are allowed to save multiple Transitions, you will be prompted for name (mandatory) and description (optional), if not, you will be overriding your default Credit Curve Template.