Default risk
The domino effect
Corporates
Confidence intervals for corporate default rates
Rating agency default studies provide estimates of mean default rates over multiple time horizons but have never included estimates of the standard errors of the estimates. This is due, at least in part, to the challenge of accounting for the high degree…
Driven to distraction
Asset-backed securities
Confidence intervals for corporate default rates
Rating agency default studies provide estimates of mean default rates over multiple time horizons but have never included estimates of the standard errors of the estimates. This is due at least in part to the challenge of accounting for the high degree…
The probability approach to default probabilities
Default estimation for low-default portfolios has attracted attention as banks contemplate the requirements of Basel II's internal ratings-based rules. Here, Nicholas Kiefer applies the probability approach to uncertainty and modelling to default…
Calibration of PD term structures: to be Markov or not to be
A common discussion in credit risk modelling is the question of whether term structures of default probabilities can be satisfactorily modelled by Markov chain techniques. Christian Bluhm and Ludger Overbeck show that empirical multi-year default…
Market risk regulatory capital expected to rise
Daily news headlines
Going downturn
There is much debate regarding the definition of 'downturn' loss given default (LGD). In this article, Michael Barco offers an analytic approach for calculating downturn LGD so that credit risk capital is not underestimated or overestimated
Going downturn
There is much debate regarding the definition of 'downturn' loss given default (LGD). In this article, Michael Barco offers an analytic approach for calculating downturn LGD so that credit risk capital is not underestimated or overestimated
Loan portfolio value
Using a conditional independence framework, Oldrich Vasicek derives a useful limiting form for the portfolio loss distribution with a single systematic factor. He then derives a risk-neutral distribution suitable for traded portfolios, and shows how…
The probability approach to default probabilities
Default estimation for low-default portfolios has attracted attention as banks contemplate the requirements of Basel II's internal ratings-based rules. Here, Nicholas Kiefer applies the probability approach to uncertainty and modelling to default…
Default and recovery correlations - a dynamic econometric approach
Integrating coherences between defaults and loss given default (LGD) is postulated by Basel II. If there is a positive correlation between the two, separate models for each lead to biased estimates for the LGD parameters, and the economic loss is…
Default and recovery correlations - a dynamic econometric approach
Integrating coherences between defaults and loss given default (LGD) is postulated by Basel II. If there is a positive correlation between the two, separate models for each lead to biased estimates for the LGD parameters, and the economic loss is…
S&P looks at PD estimation in a Basel II environment
New S&P report states that there is a negative relationship between probability of default and speculative-grade post-default recovery values.
Default and recovery correlations - a dynamic econometric approach
Integrating coherences between defaults and loss given default (LGD) is postulated by Basel II. If there is a positive correlation between the two, separate models for each lead to biased estimates for the LGD parameters, and the economic loss is…
Intensity gamma
Mark Joshi and Alan Stacey develop a new model for correlation of credit defaults based on a financially intuitive concept of business time similar to that in the variance gamma model for stock price evolution
Structural credit calibration
Damiano Brigo and Massimo Morini introduce first-passage models with time-varying volatility and random default barriers, while illustrating their tractability, exact calibration and economic interpretation. The models' behaviour on Parmalat data prior…
An empirical analysis of equity default swaps (II): multivariate insights
Equity default swaps (EDSs) have attracted much attention recently because of their similarities to credit default swaps on the one hand and American-style digital puts on the other. Particular interest has focused on collateralised debt obligations…
Estimating default correlations using a reduced-form model
Credit risk : Cuttingedge
Maximum likelihood estimate of default correlations
Estimating asset correlations is difficult in practice since there is little available data andmany parameters have to be found. Paul Demey, Jean-Frédéric Jouanin, Céline Roget andThierry Roncalli present a tractable version of the multi-factor Merton…
Mixed default modelling
Structural and reduced-form models are two well-established approaches to modelling afirm’s default risk. Here, Li Chen, Damir Filipovic/ and Vincent Poor develop a new default riskmodelling strategy based on combining these two frameworks in order to…