Fixed Income Models and Credit Risk

Free CAIA Level II lesson in Methods and Models. 37 min read, ~5,589 words.

Types of models underlying investment strategies. Financial models are simplifications of reality. Every model contains exogenous and endogenous variables. An exogenous variable is determined outside the model and taken as given. An endogenous variable is determined inside the model and takes whatever value the model prescribes. In an endowment cash-management...

What this lesson covers

• Content
• Example 1
• Example 2
• Common Mistakes
• Key Takeaways
• Exam Shortcuts

Learning objectives

• model types
• fi models intro
• bdt model
• credit risk economics
• structural model overview
• merton model
• kmv model
• reduced form models
• empirical credit models
• one period binomial
• multi period binomial
• tree prices formation
• convertible valuation
• callable bonds tree
• multifactor asset pricing
• fama french
• empirical mf challenges
• factor investing
• adaptive markets
• efficiently inefficient
• trend following
• divergence
• fundamental directional
• behavioral finance
• directional factors
• digital asset valuation
• pca statistical factors
• multifactor regression
• partial autocorrelations
• dynamic risk exposure
• changing correlation
• multifactor return approaches
• performance persistence
• rv overview
• statistical pairs equities
• pairs commodity spreads
• pairs rates fx
• rv market neutral risks
• depreciation tax shields
• tax deferral gains
• after tax comparisons
• transaction based indices
• appraisal based indices

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