Two Models of Stochastic Loss Given Default
Core Dynamics GmbH
Mathemathical Sciences Research Institute
May 18, 2012
We propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events accounting for correlations between the default events and the associated losses. We show how the models can be calibrated and analyze the impact of correlations between the occurrences of defaults and recoveries by testing our models for a representative sample portfolio.
Number of Pages in PDF File: 20
Keywords: Credit risk, Loss Given Default, integration of market with credit risk
JEL Classification: C00, G00working papers series
Date posted: May 20, 2012
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