IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

An Empirical Study of Exposure at Default

Listed author(s):
  • Michael Jacobs, Jr.


    (Office of the Comptroller of the Currency)

Registered author(s):

    In this study we empirically investigate the determinants of and build a predictive econometric model for exposure at default (EAD) using a sample of Moody’s rated defaulted firms having revolving credits. We extend prior empirical work by considering alternative determinants of EAD risk, in addition to the traditional factors (e.g., credit rating.) Various measures of EAD risk are derived and compared. We build a multiple regression model in the generalized linear class and examine the comparative rank ordering and predictive accuracy properties of these. We find weak evidence of counter-cyclicality in EAD. While we find EAD risk to decrease with default risk, utilization has the strongest inverse relation. We also find EAD risk reduced for greater leverage, liquidity, more debt cushion; and increased for greater company size, higher collateral rank or more bank debt in the capital structure of the defaulted obligor. The models are validated rigorously through resampling experiment in a rolling out-of-time and sample experiment. In addition to the credit risk management implications of this study (the parameterization of pricing and portfolio management models), there is use in quantifying EAD risk for banks qualifying for the Advanced IRB approach in the regulatory framework of the Basel II accord.

    If 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.

    File URL:
    Download Restriction: no

    Article provided by ASERS Publishing in its journal Journal of Advanced Studies in Finance.

    Volume (Year): I (2010)
    Issue (Month): 1 (June)
    Pages: 31-59

    in new window

    Handle: RePEc:srs:jasf12:4:v:1:y:2010:i:1:p:31-59
    Contact details of provider: Web page:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:srs:jasf12:4:v:1:y:2010:i:1:p:31-59. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Stefanescu)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.