Credit risk

Estimating credit contagion in a standard factor model

State-of-the-art credit risk portfolio models and the new Basel capital Accord consider only symmetric dependencies between borrowers in a portfolio, such as correlations. Recently, asymmetric dependencies have been introduced by Davis & Lo (2001), among…

Risk reallocation

The originate-and-distribute model offered a means for banks to offload credit risk from their balance sheets and distribute it to investors. But Andrew Haldane and Lewis Webber of the Bank of England argue this risk was often passed on to those least…

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…

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…

Uncovering PD/LGD liaisons

Francisco Sanchez, Roland Ordovas, Elena Martinez and Manuel Vega consider the presence of correlation between default and recovery through the familiar variance of loss formula. Business cycle dependence permits a neat decomposition of the variance…

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