The Merton Approach to Estimating Loss Given Default: Application to the Czech Republic

Jakub Seidler and Petr Jakubík

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper focuses on a key credit risk parameter – Loss Given Default (LGD). We illustrate how the LGD can be estimated with the help of an adjusted Mertonian structural approach. We present a derivation of the formula for expected LGD and show its sensitivity analysis with respect to other company structural parameters. Finally, we estimate the five-year expected LGDs for companies listed on Prague Stock Exchange and find that the average LGD for the analyzed sample is around 20–50%.

Keywords: Credit risk; loss given default; structural models. (search for similar items in EconPapers)
JEL-codes: C02 G13 G33 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-rmg and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2009/13

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