RT Journal Article
SR Electronic
T1 The Breakpoint Grid
JF The Journal of Structured Finance
FD Institutional Investor Journals
SP 37
OP 43
DO 10.3905/JSF.2008.14.3.037
VO 14
IS 3
A1 Levin, Alexander
YR 2008
UL http://jsf.pm-research.com/content/14/3/37.abstract
AB This article describes a model that combines the ideas of dynamic continuous credit rating, stress risk analysis, and a probabilistic view of losses. The article defines a breakpoint, a market scenario out of a sorted set that forces a non-agency bond to lose its first dollar of principal; a breakpoint ratio, an estimate of distance to default that is used as a basis for dynamic rating; and a breakpoint grid, a set of stress scenarios sorted in order of increasing losses that is useful for calculating a breakpoint ratio. A sample portfolio loss report is presented that provides the necessary information to assess credit risk; it combines the assessment of a portfolioâ€™s credit risk, in terms of both loss levels and odds of occurrence, with a probability analysis.