Default Probabilities and Default Correlations
47 Pages Posted: 1 Feb 2001
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: Suggested Citation
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