(Non) consistency of the Beta Kernel Estimator for Recovery Rate Distribution

Christian Gourieroux and Alain Monfort

No 2006-31, Working Papers from Center for Research in Economics and Statistics

Abstract: In this paper, we explain why a nonparametric approach based on a betakernel [Renault, Scaillet (2004)] will lead to significant bias when appliedto recovery rate distributions. This is due to a specific feature of thesedistributions, which admit strictly positive weights at 100 % correspondingto full recovery (and also at 0 % corresponding to total loss). Moreover, fordistributions without point mass at 0% and 100%, the beta kernel approachfeatures significant bias in finite sample. In large sample the method isconsistent, but other competing approaches presented in the paper providemore accurate results.

Pages: 29
Date: 2006
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Citations: View citations in EconPapers (11)

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