A Multifactor Approach for Systematic Default and Recovery Risk

Abstract

Focuses on the role of default probabilities and recovery risk in forecasting loss distributions in relation to credit risk exposures. Procedure for modeling the recovery rate of a defaulted obligor; Empirical analysis based on default and recovery rates published by Moody's rating agency and macroeconomic indices from the Conference Board; Implications of the different models for the economic capital derived from the loss distribution and the regulatory capital proposed by the Basel Committee.