Estimating Expected Loss Given Default
In: CNB Financial Stability Report 2008/2009
This article discusses the estimation of a key credit risk parameter â€“ loss given default (LGD) â€“ and calculates it for selected companies traded on the Prague Stock Exchange. The importance of estimating LGD stems from the fact that a lenderâ€™s expected loss is the product of the probability of default, the credit exposure at the time of default and the LGD. The Mertonian structural approach is used for LGD estimation. This technique enables us to derive LGD for publicly traded companies from a knowledge of their debt and share prices. It is reasonable to assume that the resulting LGD calculated for selected companies traded on the Prague Stock Exchange represents a lower estimate of this parameter for the entire corporate sector.
|This chapter was published in: Petr Jakubik & Jakub Seidler CNB Financial Stability Report 2008/2009, , chapter Thematic Article 4, pages 102-109, 2009.|
|This item is provided by Czech National Bank, Research Department in its series Occasional Publications - Chapters in Edited Volumes with number fsr0809/4.|
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