Recovery rates in investment-grade pools of credit assets: A large deviations analysis
AbstractWe consider the effect of recovery rates on a pool of credit assets. We allow the recovery rate to depend on the defaults in a general way. Using the theory of large deviations, we study the structure of losses in a pool consisting of a continuum of types. We derive the corresponding rate function and show that it has a natural interpretation as the favored way to rearrange recoveries and losses among the different types. Numerical examples are also provided.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Stochastic Processes and their Applications.
Volume (Year): 121 (2011)
Issue (Month): 12 ()
Contact details of provider:
Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/505572/description#description
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Das, Sanjiv R. & Hanouna, Paul, 2009. "Implied recovery," Journal of Economic Dynamics and Control, Elsevier, vol. 33(11), pages 1837-1857, November.
- Frey, Rudiger & McNeil, Alexander J., 2002. "VaR and expected shortfall in portfolios of dependent credit risks: Conceptual and practical insights," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1317-1334, July.
- Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
- Huyen Pham, 2007. "Some applications and methods of large deviations in finance and insurance," Papers math/0702473, arXiv.org, revised Feb 2007.
- Amir Dembo & Jean-Dominique Deuschel & Darrell Duffie, 2004.
"Large portfolio losses,"
Finance and Stochastics,
Springer, vol. 8(1), pages 3-16, January.
- Michael B. Gordy, 2002.
"A risk-factor model foundation for ratings-based bank capital rules,"
Finance and Economics Discussion Series
2002-55, Board of Governors of the Federal Reserve System (U.S.).
- Gordy, Michael B., 2003. "A risk-factor model foundation for ratings-based bank capital rules," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 199-232, July.
- Paul Glasserman & Wanmo Kang & Perwez Shahabuddin, 2007. "Large Deviations In Multifactor Portfolio Credit Risk," Mathematical Finance, Wiley Blackwell, vol. 17(3), pages 345-379.
- Gordy, Michael B., 2002. "Saddlepoint approximation of CreditRisk+," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1335-1353, July.
- Paul Glasserman & Jingyi Li, 2005. "Importance Sampling for Portfolio Credit Risk," Management Science, INFORMS, vol. 51(11), pages 1643-1656, November.
- Edward I. Altman & Brooks Brady & Andrea Resti & Andrea Sironi, 2005. "The Link between Default and Recovery Rates: Theory, Empirical Evidence, and Implications," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2203-2228, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.