Sequentially examining the full chain of events starting from the default of firms through the fire-sale of goods towards write-offs of bad loans, a new matrix of financial transactions was developed. It was shown that if firms have no equities, the cost of default of those firms is equal zero....

In the paper, authors compare Bayesian approaches to the calibration of default probability curves: a) a standard approach based on the use of logarithm of odds, b) a modified approach based on the use of logarithm of odds ratio which explicitly includes the prior probability of default in the...