Default and recovery risk dependencies in a simple credit risk model

Bade, B; Rösch, D; Scheule, H

Default and recovery risk dependencies in a simple credit risk model

Bade, B Rösch, D Scheule, H

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Publication Type:: Journal Article
Citation:: European Financial Management, 2011, 17 (1), pp. 120 - 144
Issue Date:: 2011-01-01

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Field	Value	Language
dc.contributor.author	Bade, B	en_US
dc.contributor.author	Rösch, D	en_US
dc.contributor.author	Scheule, H https://orcid.org/0000-0001-7283-5654	en_US
dc.date.issued	2011-01-01	en_US
dc.identifier.citation	European Financial Management, 2011, 17 (1), pp. 120 - 144	en_US
dc.identifier.issn	1354-7798	en_US
dc.identifier.uri	http://hdl.handle.net/10453/26988
dc.description.abstract	This paper provides evidence for the relationship between credit quality, recovery rate, and correlation. The paper finds that rating grade, rating shift, and macroeconomic factors provide a highly significant explanation for default risk and recovery risk of US bond issues. The empirical data suggest that default and recovery processes are highly correlated. Therefore, a joint approach is required for estimating time-varying default probabilities and recovery rates that are conditional on default. This paper develops and applies such a model. © 2010 Blackwell Publishing Ltd.	en_US
dc.relation.ispartof	European Financial Management	en_US
dc.relation.isbasedon	10.1111/j.1468-036X.2010.00582.x	en_US
dc.subject.classification	Finance	en_US
dc.title	Default and recovery risk dependencies in a simple credit risk model	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	17	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	17	en_US

Abstract:

This paper provides evidence for the relationship between credit quality, recovery rate, and correlation. The paper finds that rating grade, rating shift, and macroeconomic factors provide a highly significant explanation for default risk and recovery risk of US bond issues. The empirical data suggest that default and recovery processes are highly correlated. Therefore, a joint approach is required for estimating time-varying default probabilities and recovery rates that are conditional on default. This paper develops and applies such a model. © 2010 Blackwell Publishing Ltd.

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http://hdl.handle.net/10453/26988