Saved in:
| Main Authors: | , |
|---|---|
| Format: | Preprint |
| Published: |
2020
|
| Subjects: | |
| Online Access: | https://arxiv.org/abs/2009.00868 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1866914128159834112 |
|---|---|
| author | Egami, Masahiko Kevkhishvili, Rusudan |
| author_facet | Egami, Masahiko Kevkhishvili, Rusudan |
| contents | This study proposes a stochastic model for loss-given-default (LGD) which provides the LGD distribution based on credit market and company-specific financial conditions. The model utilizes last passage time of a linear diffusion (representing firm value) to a certain threshold point, after which default occurs as a surprising event. By treating the post-last passage time process in a continuum of the original process, we are able to use firm-value approach before and intensity-based approach after the last passage time, leading to a hybrid model. Under minimal and standard assumptions, we obtain the distributions of default time and LGD explicitly. We provide a computationally simple estimation procedure and real-world examples of estimated LGD distribution implied in CDS market. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2009_00868 |
| institution | arXiv |
| publishDate | 2020 |
| record_format | arxiv |
| spellingShingle | Loss-Given-Default Modeling by Post-Last Passage Time Process Egami, Masahiko Kevkhishvili, Rusudan Risk Management 60J60, 60J70 This study proposes a stochastic model for loss-given-default (LGD) which provides the LGD distribution based on credit market and company-specific financial conditions. The model utilizes last passage time of a linear diffusion (representing firm value) to a certain threshold point, after which default occurs as a surprising event. By treating the post-last passage time process in a continuum of the original process, we are able to use firm-value approach before and intensity-based approach after the last passage time, leading to a hybrid model. Under minimal and standard assumptions, we obtain the distributions of default time and LGD explicitly. We provide a computationally simple estimation procedure and real-world examples of estimated LGD distribution implied in CDS market. |
| title | Loss-Given-Default Modeling by Post-Last Passage Time Process |
| topic | Risk Management 60J60, 60J70 |
| url | https://arxiv.org/abs/2009.00868 |