Quotation Schneider, Paul, Sögner, Leopold, Veza, Tanja. 2010. The Economic Role of Jumps and Recovery Rates in the Market for Corporate Default Risk. Journal of Financial and Quantitative Analysis 45 (6): 1517-1547.


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Abstract

Using an extensive cross section of U.S. corporate credit default swaps (CDSs), this paper offers an economic understanding of implied loss given default (LGD) and jumps in default risk. We formulate and underpin empirical stylized facts about CDS spreads, which are then reproduced in our affine intensity-based jump-diffusion model. Implied LGD is well identified, with obligors possessing substantial tangible assets expected to recover more. Sudden increases in the default risk of investment-grade obligors are higher relative to speculative grade. The probability of structural migration to default is low for investment-grade and heavily regulated obligors because investors fear distress rather through rare but devastating events.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Financial and Quantitative Analysis (JFQA)
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-A, VW-B, WH-A
Language English
Title The Economic Role of Jumps and Recovery Rates in the Market for Corporate Default Risk
Volume 45
Number 6
Year 2010
Page from 1517
Page to 1547
Reviewed? Y

Associations

People
Schneider, Paul (Former researcher)
Veza, Tanja (Former researcher)
External
Sögner, Leopold (Institut für Höhere Studien (IHS), Austria)
Organization
Institute for Finance, Banking and Insurance IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5305 Bank management (Details)
5307 Business and management economics (Details)
5360 Financial mathematics (Details)
5361 Financial management (Details)
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