On the Dependence between Default Risk and Recovery Rates in Structural Models

Jean-David Fermanian

Annals of Economics and Statistics, 2020, issue 140, 45-82

Abstract: We define several concepts of dependence between default risk and recovery risk, in a factor model framework. These concepts are illustrated and compared from the perspective of structural models: Merton (1974)‘s single horizon and single firm model, multi-factor extensions, possibly under a portfolio approach. Some first-passage time models are discussed too: Kou (2002)‘s model and some of its extensions, in particular by adding self-exciting features. We evaluate the different concepts of default/recovery dependencies analytically when it is possible, otherwise by simulation.

Keywords: Default Probability; Recovery Rate; Copulas; Structural Models; Jumps. (search for similar items in EconPapers)
JEL-codes: G20 G32 G33 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2020:i:140:p:45-82

DOI: 10.15609/annaeconstat2009.140.0045

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