Default probabilities and default correlations

Research, Preprint OPEN
Erlenmaier, Ulrich; Gersbach, Hans;
  • Publisher: Frankfurt a. M.: Deutsche Bank Research
  • Subject: Kreditrisiko | G31 | G11 | Credit portfolio management,Default correlations,Pricing of loans,Macroeconomic risk,Credit risk models | G21 | Varianzanalyse | G12 | Macroeconomic risk | Pricing of loans | Default correlations | Credit risk models | Portfolio-Management | Korrelation | Credit portfolio management | Optionspreistheorie | Theorie
    • jel: jel:G12 | jel:G11 | jel:G21 | jel:G31
      ddc: ddc:330

Starting from the Merton framework for firm defaults, we provide the analytics and robustness of the relationship between default correlations. We show that loans with higher default probabilities will not only have higher variances but also higher correlations between ... View more
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