Ultimate recoveries

Measuring recovery using the ultimate rate observed at emergence from bankruptcy may be conceptually desirable, but modelling it is difficult. Craig Friedman and Sven Sandow tackle the problem by maximising the creditor’s utility function, constructed from a recovery rate probability distribution, conditional on information that ought to influence it, such as collateral quality and debt seniority

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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