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    Extreme correlation of defaults and LGDs

    Hu, Y.-T. (2007) Extreme correlation of defaults and LGDs. Working Paper. Birkbeck, University of London, London, UK.

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    Abstract

    This paper conducts a systematic investigation into the correlation between the default rate and three definitions of the recovery rate: price recoveries, settlement recoveries and discounted settlement recoveries. The data suggests a strong linear correlation for price recoveries and a weak one for settlement recoveries, but little or no correlation for discounted settlement recoveries. Using extreme value techniques, I show that the tail dependency for the settlement recoveries is as strong as that for the price recoveries. The probability of high losses (loss given default exceeding 0.9) is consistently higher for the settlement recoveries than for the price recoveries at any level of the quarterly default rate above 0.1%.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0705
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 26 Mar 2019 15:37
    Last Modified: 30 Jul 2019 16:57
    URI: http://eprints.bbk.ac.uk/id/eprint/26907

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