Why Beta-Distribution - Demand/Supply Theory of Recovery Rates
21 Pages Posted: 22 Jan 2007
Date Written: January 18, 2007
A new model, which connects the distribution of recovery rates with the demand/supply framework for secondary securities, is suggested. This model explains why the beta- distribution is a good fit for recovery rates modeling. A comparison with published data is provided. The approach and formula proposed in this paper could be used to model recovery rates.
Keywords: Recovery Rates, Beta-distribution, demand curve, extreme value theory, default
JEL Classification: G15, G21
Suggested Citation: Suggested Citation