The double default value-of-the-firm model

C. Gourieroux and Alain Monfort

Journal of Credit Risk

Abstract: ABSTRACT In the new Basel Accord, banks have the possibility to consider the double default;effect of a guaranteed exposure, which is when both the obligor and the guarantor fail;to meet their obligations. This question is currently taken into account by a multivariate;value-of-the-firm model, with increased asset correlations between the obligor and;the guarantor, in order to capture the additional link created by the guarantee. Such;an approach is misleading, since the obligor and guarantor are treated in a symmetric;way, whereas the link between obligor and guarantor is clearly asymmetric. Moreover,;their joint default involves an over-the-counter price of the guarantee, whose existence;and uniqueness have to be analyzed. The aim of our paper is to specify this link in;detail, to discuss how it depends on the type of guarantee and the seniorities of the;components of the debts, and to deduce its implications in terms of risk management.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-credit-risk/245624 ... ue-of-the-firm-model (text/html)

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:rsk:journ1:2456243

Access Statistics for this article

More articles in Journal of Credit Risk from Journal of Credit Risk
Bibliographic data for series maintained by Thomas Paine ().