Default Probabilities and Default Correlations

47 Pages Posted: 1 Feb 2001

See all articles by Ulrich Erlenmaier

Ulrich Erlenmaier

University of Heidelberg - Alfred Weber Institute for Economics

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: February 2001

Abstract

Starting from the Merton framework for firm defaults we provide the analytics and robustness of the relationship between default probabilities and default correlations. We then derive the implication of these results for the impact of macroeconomic shocks on credit portfolios, for the pricing of loans, and for the design of credit risk models. pricing of loans, macroeconomic risk, credit risk models

Keywords: Credit portfolio management, default correlations,

JEL Classification: G11, G12, G21, G31

Suggested Citation

Erlenmaier, Ulrich and Gersbach, Hans, Default Probabilities and Default Correlations (February 2001). Available at SSRN: https://ssrn.com/abstract=258431 or http://dx.doi.org/10.2139/ssrn.258431

Ulrich Erlenmaier (Contact Author)

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany
+49 6221 542958 (Phone)
+49 6221 543578 (Fax)

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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