In this paper we have presented a new approach to measure the return-risk trade-off in portfolios of risky debt instruments, whether bonds or loans. The use of complex, statistically based portfolio techniques to manage assets of financial institutions and fixed income portfolio money managers...

Against the current backdrop of troubled credit markets and the possibility of growing defaults, a distinguished group of bankruptcy academics and practitioners explore a number of questions raised by the emergence of increasingly active distressed investors: Are these relatively new market...

This paper has examined two specific aspects of stage 1 of the (BIS's) Bank for International Settlement's proposed reforms to the 8% risk-based capital ratio. We argue that relying on "traditional" agency ratings could produce cyclically lagging rather leading capital requirements, resulting in...

Evidence from many countries in recent years suggests that collateral values and recovery rates (RRs) on corporate defaults can be volatile and, moreover, that they tend to go down just when the number of defaults goes up in economic downturns. This link between RRs and default rates has...

We propose a totally new approach toward assessing sovereign risk by examining rigorously the health and aggregate default risk of a nation’s private corporate sector. Models such as our new Z-Metrics™ approach can be utilized to measure the median probability of default of the non-financial...

This paper provides a synthesis of the theoretical literature on financial distress. It employs a two-state framework, which more clearly captures the generalizations of the more complex models. The equation systems that are derived permit the development of a series of examples that convey the...

This paper analyzes the association between default and recovery rates on credit assets and seeks to empirically explain this critical relationship. We examine recovery rates on corporate bond defaults over the period 1982–2002. Our econometric univariate and multivariate models explain a...