Salvato in:
| Autori principali: | , |
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| Natura: | Preprint |
| Pubblicazione: |
2020
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| Soggetti: | |
| Accesso online: | https://arxiv.org/abs/2009.00868 |
| Tags: |
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Sommario:
- 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.