by Fei Sun, Kaixin Yan, Wenyuan Wang
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Suggested foundations for credit and counterparty risk and portfolio construction. Specialist prerequisites vary by paper.
Separate default probability, loss severity and exposure.
Read conditional default and exposure quantities.
Understand the covariance structure of portfolio risk.
Read objectives, constraints and optimality conditions.
Study dependence between defaults.
Connect exposure and counterparty losses to valuation adjustments.
Construct allocations and examine sensitivity to estimated inputs.
Connect diversification, common risk factors, investor views, and the properties of a risk measure.