Recovery rates in investment-grade pools of credit assets: A large deviations analysis

Konstantinos Spiliopoulos and Richard B. Sowers

Stochastic Processes and their Applications, 2011, vol. 121, issue 12, 2861-2898

Abstract: We consider the effect of recovery rates on a pool of credit assets. We allow the recovery rate to depend on the defaults in a general way. Using the theory of large deviations, we study the structure of losses in a pool consisting of a continuum of types. We derive the corresponding rate function and show that it has a natural interpretation as the favored way to rearrange recoveries and losses among the different types. Numerical examples are also provided.

Keywords: Recovery rates; Default rates; Credit assets; Large deviations (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:spapps:v:121:y:2011:i:12:p:2861-2898

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DOI: 10.1016/j.spa.2011.08.005

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