Recovery rates

A bottom-up model with top-down dynamics

Yadong Li proposes a flexible, tractable and arbitrage-free bottom-up dynamic correlation modelling framework with a consistent stochastic recovery specification for multi-name credit derivatives. In this framework, the model’s spread dynamics can be…

Individual names in top-down CDO pricing models

The Gaussian copula collapsed as a means of pricing collateralised debt obligations in the crisis of 2008, as to match prices and deltas nonsensical correlation parameters were required. By adapting the traditional framework to cater for more general…

Ultimate recoveries

Measuring recovery using the ultimate rate observed at emergence from bankruptcy may be conceptually desirable, but modelling it is difficult.

A false sense of security

Credit portfolio models often assume that recovery rates are independent of default probabilities. Here, Jon Frye presents empirical evidence showing that such assumptions are wrong. Using US historical default data, he shows that not only are recovery…

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…

A false sense of security

Credit portfolio models often assume that recovery rates are independent of defaultprobabilities. Here, Jon Frye presents empirical evidence showing that such assumptions arewrong. Using US historical default data, he shows that not only are recovery…

Unexpected recovery risk

For credit portfolio managers, the priority is to properly incorporate recovery rates into existing models. Here, Michael Pykhtin improves upon earlier approaches, allowing recovery rates to depend on the idiosyncratic part of a borrower’s asset return,…

Unexpected recovery risk

For credit portfolio managers, the priority is to properly incorporate recovery rates into existing models. Here, Michael Pykhtin improves upon earlier approaches, allowing recovery rates to depend on the idiosyncratic part of a borrower’s asset return,…

Sponsor's article > No cure through the cycle

Some have argued that the antidote for pro-cyclicality in the Basel II capital requirements is the use of 'through-the-cycle' estimates of default and recovery rates. David Rowe argues that, whilethis might mitigate the pro-cyclical impact of the Accord,…

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