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| Identificativo | DasFreedGengKapadia04, |
| Tipo di record | |
| Autore/i | Das S ; Freed L ; Geng G ; Kapadia N |
| Anno | 2004 |
| Titolo | Correlated Default Risk |
| paper |
| Altre Informazioni | June Web Download. |
| Keywords separare key1:key2 | |
| Abstract | Defaults of individual firms will cluster if there are common factors that affect each firm’s default risk. Using a comprehensive dataset of firm-level default probabilities from Moody’s, we examine co-variation of default risk across almost all US public non-financial firms. We demonstrate that joint default risk varies substantially with changes in business conditions because magnitudes of both default probabilities and default correlations vary over time. For example, over the latter half of the 1990s, default probabilities across the economy doubled, and correlations increased by an even greater magnitude. Our data indicates that systematic time-variation in default risk is driven more by an economy-wide volatility factor than by changing debt levels. We also document cross-sectional differences across rating clases - default correlations are higher amongst higher quality issuers. We provide a reduced-form stochastic framework to model joint default risk with these properties. We illustrate and quantify the economic importance of our findings; the calibrated system shows that there are substantial differences in default distributions across economic regimes.
Sanjiv R. Das
Santa Clara University
Santa Clara, CA.*
Laurence Freed
Moodys KMV
New York, NY.
Gary Geng
Amaranth Group, Inc.
Greenwich, CT.
Nikunj Kapadia
Univ. of Massachusetts
Amherst, MA. |
| File documento allegato | |
| Documento del gruppo di ricerca | No |
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