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Default and Recovery Dependencies in a Simple Credit Risk Model

Bade, Benjamin ; Rösch, Daniel ; Scheule, Harald


This paper provides evidence for the relationship between credit quality, recovery rate, and correlation. The paper finds that rating grade, rating shift, and macroeconomic factors provide a highly significant explanation for default risk and recovery risk of US bond issues. The empirical data suggest that default and recovery processes are highly correlated. Therefore, a joint approach is ...


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