Credit risk v Market risk management

[Deksumo]

Hi,

I want to know what would be a better choice (between credit & market risk) if i ultimately want to move into equity research.

I know that credit risk involves looking at the financial statements of the company and analysing their industry, but i'm not sure how indepth that analysis is. Also i've been told there isn't much financial modelling (i.e. DCF) involved in the role.

Market risk focuses more on the trading desk's activities and stress testing/sensitivity analysis of current and prospective trades. Although from this perspective it's not relevant to research i've heard market risk makes more use of the knowledge from the CFA.

Is anyone able to confirm/elaborate on any of the above and provide some advice?

Much appreciated.

 

[Ken Abbott]

I want to know what would be a better choice (between credit & market risk) if i ultimately want to move into equity research.

Credit risk is much closer to equity research than market risk

I know that credit risk involves looking at the financial statements of the company and analysing their industry, but i'm not sure how indepth that analysis is.

It is at least as in-depth any anyone in equity research would need it to be - probably deeper.

Also i've been told there isn't much financial modelling (i.e. DCF) involved in the role.

There's a HUGE amount of financial modeling in credit risk. The credit risk models in the industry are at least as complex as those in market risk and derivative pricing. Counterparty credit risk involves the extensive use of gaussian copulae, combined with estimated repricing of all assets NET of collateral (also modeled) and taking into consideration netting agreements.

Issuer credit risk requires a detailed understanding of how cash flows through a company and how leverage affects company health.

 

[John L]

Thank you, Mr. Abbott