Purpose – The purpose of this paper is to critically analyze the common assumption, made by many credit risk models such as the Moody's KMV Loss‐Calc model, of a β distribution for the loss‐given default (LGD). The paper shows that this assumption does not perform well in constructing...

Purpose – The purpose of this paper is to critically analyze the common assumption, made by many credit risk models such as the Moody's KMV Loss-Calc model, of a ß distribution for the loss-given default (LGD). The paper shows that this assumption does not perform well in constructing...