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

Konstantinos Spiliopoulos and Richard B. Sowers

Papers from arXiv.org

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.

Date: 2010-06, Revised 2011-08
New Economics Papers: this item is included in nep-ban and nep-rmg
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Published in Stochastic Processes and their Applications, Volume 121, Issue 12, 2011, pp. 2861- 2898

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1006.2711

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