An Empirical Study of Exposure at Default

Michael Jacobs ()

Journal of Advanced Studies in Finance, 2010, vol. 1, issue 1, 31-59

Abstract: In this study we empirically investigate the determinants of and build a predictive econometric model for exposure at default EAD using a sample of Moody s rated defaulted firms having revolving credits We extend prior empirical work by considering alternative determinants of EAD risk in addition to the traditional factors e g credit rating Various measures of EAD risk are derived and compared We build a multiple regression model in the generalized linear class and examine the comparative rank ordering and predictive accuracy properties of these We find weak evidence of counter cyclicality in EAD While we find EAD risk to decrease with default risk utilization has the strongest inverse relation We also find EAD risk reduced for greater leverage liquidity more debt cushion and increased for greater company size higher collateral rank or more bank debt in the capital structure of the defaulted obligor The models are validated rigorously through resampling experiment in a rolling out of time and sample experiment In addition to the credit risk management implications of this study the parameterization of pricing and portfolio management models there is use in quantifying EAD risk for banks qualifying for the Advanced IRB approach in the regulatory framework of the Basel II accord

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (7)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:srs:jasf00:v:1:y:2010:i:1:p:31-59

Access Statistics for this article

Journal of Advanced Studies in Finance is currently edited by Laura GAVRILĂ (formerly Ştefănescu)

More articles in Journal of Advanced Studies in Finance from ASERS Publishing
Bibliographic data for series maintained by Claudiu Popirlan ( this e-mail address is bad, please contact ).