1. Getting Started

The first order of business is to highlight the scope of the book, its organization, and the underlying principles associated with its construction. This chapter thus begins by explaining the purview of credit-risk perspectives adopted, or scope, in the following discussion. The subsequent chapters, to be clear, consider static, structural and reduced-form, credit-risk models in a portfolio setting from a predominately risk-management perspective. Most of the ideas, however, with a few changes such as choice of probability measure, are readily applied to the pricing context. It then proceeds to highlight the three thematic elements of the book’s organization: models, diagnostic tools, and parameter estimation. This structure was designed to naturally incorporate the challenges of model selection and management through multiplicity of perspective. It also seeks to promote transparency and accessibility of presentation and practical concreteness. The chapter, therefore, concludes with a brief introduction to a compact portfolio example, which will be used throughout the remainder of the book. Preliminary analysis is performed on this portfolio to help understand its characteristics and foreshadow the forthcoming analytic elements.