.chapter24<-function(i=0){
" i  Chapter 24: Credit risk analysis
  -  -------------------------------------
  1  What is credit risk?
  2  Credit spread
  3  Credit rating 
  4  Term structure of interest rate
  5
  6
  7
  8
  9
 10  
 11
 12
 13  payoff of a call vs. D and E 
 14  VBA for Black-Sholes call option 
 15
 16
 17
 18
 19 Videos
 20 Links

 Example #1:>.c24    # see the above list
 Example #2:>.c24()  # the same as the above
 Example #3:>.c24(1) # see the first explanation

";.zchapter24(i)}

.n24chapter<-20
.zchapter24<-function(i){

    if(i==0){
        print(.c24)
     }else{
     .printEachQ(24,i,.n24chapter)
     }

}
.c24<-.chapter24

.C24EXPLAIN1<-"From where to download R
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A credit risk is the risk of default on a debt that may arise from a 
borrower failing to make required payments. In the first resort, the 
risk is that of the lender and includes lost principal and interest, 
disruption to cash flows, and increased collection costs.


   https://en.wikipedia.org/wiki/Credit_risk


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.C24EXPLAIN2<-"Credit spread 
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A credit spread is the difference in yield between two bonds of similar 
maturity but different credit quality. For example, if the 10-year 
Treasury note is trading at a yield of 6% and a 10-year corporate 
bond is trading at a yield of 8%, the corporate bond is said to 
offer a 200-basis-point spread over the Treasury.

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.C24EXPLAIN3<-"Credit rating 
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.C24EXPLAIN4<-"Term structure of interest rate 
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The relationship between time and risk-free rate. 

    https://finance.yahoo.com/bonds

For example, on 4/26/2017

US Treasury Bonds Rates

Maturity  Yield   Yesterday  Last Week   Last Month
3 Month   0.76     0.75      0.75        0.71
6 Month   0.92     0.92      0.81        0.75
2 Year    1.24     1.25      1.15        1.24
3 Year    1.44     1.46      1.35        1.49
5 Year    1.81     1.84      1.72        1.90
10 Year   2.29     2.31      2.19        2.36
30 Year   2.95     2.97      2.85        2.96

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.C24EXPLAIN13<-"payoff of a call vs.  D and E
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The payoff function for a call option buyer is given below. 
   payoff(call)  = Max( sT-X, 0)            (1)

   where sT is the stock price at T
          T is the maturity 
          X is the exercise price
  For example, we then sT=10, and x=15
      The price of the cal is zero since nobody is willing to 
      pay $15 to buy a share when its market value is $10. 
  when sT=20, the payoff will be $5. 

Now, let's look at the relationship between D and E. 
----------------------------------
Concept #1: Equity holder is a so-called residual benefit claimer. 
            It means that only after debt (bond) holders get paid then 
            the equity holders would get anything left. 
     A=  E + D
               Where A is assets
                     E is equity
                     D is debt 
  Obviously, only when A > D, E>0
       E = max(A-D,0)                   (2)
  This is the same as the payoff for a call option:

   payoff(call) = Max( sT- X, 0)        (1)
       E        = Max( A - D, 0)        (2)
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.C24EXPLAIN14<-"VBA for Black-Scholes call option model 
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Function bsCall(S, X, T, r, sigma) As Single
    
    d1 = (Log(S / X) + (r + 0.5 * sigma ^ 2) * T) / (sigma * (Sqr(T)))
    d2 = d1 - sigma * Sqr(T)
    bsCall = S * Application.NormSDist(d1) - X * Exp(-r * T) * Application.NormSDist(d2)
        
End Function

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.C24EXPLAIN17<-"add soon 
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.C24EXPLAIN18<-"add soon 
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.C24EXPLAIN19<-"videos
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.C24EXPLAIN20<-"Links 
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Credit risk
-----------
   Wikipedia
       https://en.wikipedia.org/wiki/Credit_risk
 
   Investopeid
       http://www.investopedia.com/terms/c/creditrisk.asp
   SAS, Credit Risk Management: What it is and why it matters
       https://www.sas.com/en_us/insights/risk-management/credit-risk-management.html
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"