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.

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.

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

present empirical studies of recovery rates that discredit those simplistic assumptions,

survey the growing literature, and

describe new, sophisticated models for loss given default.

The chapters are divided into four parts:

Defining and Measuring Recovery Risk

Measuring Loss Given Default on Specific Portfolios

The PD/LGD Correlation

Advanced Methodologies

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.