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Estimation of Default Probabilities and Default Correlations

In: Risk Management

Author

Listed:
  • Stefan Huschens
  • Konstantin Vogl
  • Robert Wania

    (Technische Universität Dresden)

Abstract

This paper provides estimators for the default probability and default correlation for a portfolio of obligors. Analogously to rating classes, homogeneous groups of obligors are considered. The estimations are made in a general Bernoulli mixture model with a minimum of assumptions and in a single-factor model. The first case is treated with linear distribution-free estimators and the second case with the maximum-likelihood method. All problems are viewed from different points of origin to address a variety of practical questions.

Suggested Citation

  • Stefan Huschens & Konstantin Vogl & Robert Wania, 2005. "Estimation of Default Probabilities and Default Correlations," Springer Books, in: Michael Frenkel & Markus Rudolf & Ulrich Hommel (ed.), Risk Management, edition 0, pages 239-258, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-26993-9_12
    DOI: 10.1007/3-540-26993-2_12
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    Cited by:

    1. Tillich Daniel, 2016. "Checking Default Correlation and Score Correlation in a Breakpoint Model for Rating Classification," Stochastics and Quality Control, De Gruyter, vol. 31(1), pages 1-10, June.

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