Quant Congress: Default rate data "underestimates structured credit risks"

Speaking at Risk's Quant Congress event in New York on July 15, Jarrow explained how the convention of using the official bankruptcy as the default event had led to overoptimistic recovery rate assumptions.

"This date is based on when some clerk files a bankruptcy claim, but in fact the market has usually known for some time about the default" and sold the underlying, he said. As a result, recovery rates in model calibration were calculated relative to this later depressed value, and so were far

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