Default Probabilities and Default Correlations

Erlenmaier, Ulrich; Gersbach, Hans

doi:10.2139/ssrn.258431

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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 Research; 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: 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