The Merton Approach to Estimating Loss Given Default: Application to the Czech Republic
This paper focuses on a key credit risk parameter â€“ Loss Given Default (LGD). We illustrate how the LGD can be estimated with the help of an adjusted Mertonian structural approach. We present a derivation of the formula for expected LGD and show its sensitivity analysis with respect to other company structural parameters. Finally, we estimate the five-year expected LGDs for companies listed on Prague Stock Exchange and find that the average LGD for the analyzed sample is around 20â€“50%.
|Date of creation:||Dec 2009|
|Date of revision:|
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