Recovery rates in investment-grade pools of credit assets: A large deviations analysis

We consider the effect of recovery rates on a pool of credit assets. We allow the recovery rate to depend on the defaults in a general way. Using the theory of large deviations, we study the structure of losses in a pool consisting of a continuum of types. We derive the corresponding rate function and show that it has a natural interpretation as the favored way to rearrange recoveries and losses among the different types. Numerical examples are also provided.

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Year of publication:	2011
Authors:	Spiliopoulos, Konstantinos ; Sowers, Richard B.
Published in:	Stochastic Processes and their Applications. - Elsevier, ISSN 0304-4149. - Vol. 121.2011, 12, p. 2861-2898
Publisher:	Elsevier
Subject:	Recovery rates \| Default rates \| Credit assets \| Large deviations

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010875076