Default and Recovery Risk Dependencies in a Simple Credit Risk Model

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

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Year of publication:	2013
Authors:	Bade, Benjamin
Other Persons:	Rösch, Daniel (contributor) ; Scheule, Harald (Harry) (contributor)
Publisher:	[2013]: [S.l.] : SSRN
Subject:	Kreditrisiko \| Credit risk \| Theorie \| Theory \| Basler Akkord \| Basel Accord \| Insolvenz \| Insolvency \| Bankenkrise \| Banking crisis \| Risikomanagement \| Risk management \| Risiko \| Risk