the web's biggest credit risk modeling resource.

Credit Jobs

Home Glossary Links FAQ / About Site Guide Search


Submit Your Paper

In Rememberance: World Trade Center (WTC)

Export citation to:
- Text (plain)
- BibTeX

A Multifactor Approach for Systematic Default and Recovery Risk

by Daniel Rösch of the University of Regensburg, and
Harald Scheule of the University of Melbourne

September 2005

Abstract: The following article develops a simultaneous multi-factor model for defaults and recoveries. Applying this model, risk parameters can be forecast using systematic and idiosyncratic risk factors and their implied correlations. The theoretical framework is accompanied by an empirical analysis in which a negative correlation between defaults and recoveries over the business cycle is observed. In the study, default and recovery rates are modeled by business cycle indicators and the properties of the economic and regulatory capital given these risk drivers are shown.

JEL Classification: G20, G28, C51.

Keywords: Recoveries, Loss Given Default, Correlations, Basel II.

Published in: Journal of Fixed Income, Vol. 15, No. 2, (September 2005), pp. 63-75.

This paper is republished as Ch.6 in...

Books Referenced in this paper:  (what is this?)

Download paper (320K PDF) 32 pages