Recovery Risk (Loss Given Default)

<body> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table1"> <tr> <td width="50%" valign="top"> <p align="left" class="body"><strong style="font-weight: 400">Readers will recognize Edward Altman as the inventor of the famous Altman's Z Score for assessing a corporation's credit quality. Here he has teamed up with Andrea Resti and Andrea Sironi to prepare an edited collection of articles on recovery risk. </strong></p> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="125" align="left" id="table2"> <tr> <td width="120"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td><td width="5"> </td> </tr> </table> <p align="left" class="body"><strong style="font-weight: 400">The new Basel II Accord and structured instruments such as CDOs have made credit risk modeling a new priority. Research is progressing at an accelerating clip. Most has focused on quantifying probability of default for a single credit or methods of adding correlation to such models so they can be extended to portfolios of credits. Less work has focused on modeling the other two components of credit risk—exposure at default and recovery rate. This book has 19 chapters on the latter topic, and they are outstanding. </strong></p> <p align="left" class="body"><strong style="font-weight: 400">Traditionally, credit models have either assumed a fixed recovery rate or have treated the recovery rate as random but independent of the probability of default. Chapters of this book do three things. They</strong></p> <p align="left" class="bullet_line_space"> <img border="0" src="../images/bullet.gif" width="20" height="10"><strong style="font-weight: 400">present empirical studies of recovery rates that discredit those simplistic assumptions, </strong></p> <p align="left" class="bullet_line_space"> <img border="0" src="../images/bullet.gif" width="20" height="10"><strong style="font-weight: 400">survey the growing literature, and</strong></p> <p align="left" class="bullet_line_space"> <img border="0" src="../images/bullet.gif" width="20" height="10"><strong style="font-weight: 400">describe new, sophisticated models for loss given default.</strong></p> <p align="left" class="body"><strong style="font-weight: 400">The chapters are divided into four parts:</strong></p> <p align="left" class="bullet_line_space"> <img border="0" src="../images/bullet.gif" width="20" height="10"><strong style="font-weight: 400">Defining and Measuring Recovery Risk</strong></p> <p align="left" class="bullet_line_space"> <img border="0" src="../images/bullet.gif" width="20" height="10"><strong style="font-weight: 400">Measuring Loss Given Default on Specific Portfolios</strong></p> <p align="left" class="bullet_line_space"> <img border="0" src="../images/bullet.gif" width="20" height="10"><strong style="font-weight: 400">The PD/LGD Correlation</strong></p> <p align="left" class="bullet_line_space"> <img border="0" src="../images/bullet.gif" width="20" height="10"><strong style="font-weight: 400">Advanced Methodologies</strong></p> <p align="left" class="body"><strong style="font-weight: 400">Discussions cover corporate debt as well as bank loans and leasing portfolios. There is plenty of depth here. Discussions are mostly non-technical, but the occasional integral or mathematical expectation makes an appearance. Obviously, a book like this will appeal primarily to quantitative professionals—a lot of sophisticated math is alluded to. There are chapters written describing vendor's products, so there is some marketing going on. These chapters are substantive, so they earned their place in the book. </strong></p> </td> <td width="50%" valign="top" class="body" rowspan="2"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table3"> <tr> <td width="100%" bgcolor="#333366"> <p class="header_yellow" align="center">Contents</td> </tr> <tr> <td width="100%" class="explanatory_text"> <table border="1" cellpadding="0" cellspacing="5" style="border-collapse: collapse" bordercolor="#CCCCFF" bgcolor="#CCCCFF" width="100%" id="table4"> <tr> <td class="contents_expanded"> <p class="contents" style="margin-top: 9; margin-bottom: 9">Introduction<p class="contents" style="margin-top: 9; margin-bottom: 9"><b>DEFINING AND MEASURING RECOVERY RISK</b><p class="contents" style="margin-top: 9; margin-bottom: 9">1. What Do We Know About Loss Given Default?<p class="contents" style="margin-top: 9; margin-bottom: 9">2. Defining LGD: The Basel II Perspective<p class="contents" style="margin-top: 9; margin-bottom: 9">3. Loss Given Default: A Review of the Literature<p class="contents" style="margin-top: 9; margin-bottom: 9">4. Estimating Recovery Risk by Means of a Quantitative Model: LossCalc<p class="contents" style="margin-top: 9; margin-bottom: 9"> 5. Recovery Ratings: A Fundamental Approach to Estimating Recovery Risk<p class="contents" style="margin-top: 9; margin-bottom: 9"><b>MEASURING LGD ON SPECIFIC PORTFOLIOS</b><p class="contents" style="margin-top: 9; margin-bottom: 9"> 6. How to Measure Recoveries and Provisions on Bank Lending: Methodology and Empirical Evidence<p class="contents" style="margin-top: 9; margin-bottom: 9">7. Recovery Rates in the Banking Industry: Stylised Facts Emerging from the Italian Experience<p class="contents" style="margin-top: 9; margin-bottom: 9">8. Estimating LGD in the Leasing Industry: Empirical Evidence from a Multivariate Model<p class="contents" style="margin-top: 9; margin-bottom: 9"> 9. Recovery Rates from Distressed Management Buy-Outs<p class="contents" style="margin-top: 9; margin-bottom: 9"> <b>THE PD/LGD CORRELATION</b><p class="contents" style="margin-top: 9; margin-bottom: 9">10. The Effects of Systematic Credit Risk: a False Sense of Security<p class="contents" style="margin-top: 9; margin-bottom: 9"> 11. LGD in a Structural Model of Default<p class="contents" style="margin-top: 9; margin-bottom: 9">12. The PD/LGD Link: Empirical Evidence from the Bond Market<p class="contents" style="margin-top: 9; margin-bottom: 9"> 13. Systematic Risk in Recovery Rates of US Corporate Credit Exposures<p class="contents" style="margin-top: 9; margin-bottom: 9">14. The PD/LGD Link: Implications for Credit Risk Modelling<p class="contents" style="margin-top: 9; margin-bottom: 9">15. Credit Risk Assessment and Stochastic LGD: An Investigation of Correlation Effects<p class="contents" style="margin-top: 9; margin-bottom: 9"> <b>ADVANCED METHODOLOGIES</b><p class="contents" style="margin-top: 9; margin-bottom: 9">16. Choosing the Discount Factor for Estimating Economic LGD <p class="contents" style="margin-top: 9; margin-bottom: 9">17. Estimating “Distressed” LGD on Defaulted Exposures: A Portfolio Model Applied to Leasing Contracts<p class="contents" style="margin-top: 9; margin-bottom: 9"> 18. Estimation of Recovery Rate Densities: Non-parametric and Semi-parametric Approaches versus Industry Practice<p class="contents" style="margin-top: 9; margin-bottom: 9"> 19. Estimating Conditional Probability Distributions of Recovery Rates: A Utility-Based Approach</td> </tr> </table> </td> </tr> </table> <p class="body">For anyone with an interest in credit risk modeling, this book is a must read. For recovery risk, it defines the state of the art. <b>[11/14/05]</b></p> <p align="center" class="body"> </p> </td> </tr> <tr> <td width="50%" valign="top"> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" width="100%" bgcolor="#CCCCFF" height="24" id="table5"> <tr> <td width="100%" align="left"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </td> </tr> </table> </body>