Authors: | Sibbertsen, Philipp Weißbach, Rafael |
Title: | The Cost for the Default of a Loan - Linking Theory and Practice |
Language (ISO): | en |
Abstract: | When calculating the cost of entering into a credit transaction the predominant stochastic component is the expected loss. Often in the credit business the one-year probability of default of the liable counterpart is the only reliable parameter. We use this probability to calculating the exact expected loss of trades with multiple cash flows. Assuming a constant hazard rate for the default time of the liable counterpart we show that the methodology used in practice is a linear Taylor approximation of our exact calculus. In a second stage we can generalize the calculation to arbitrary hazard rates for which we prove statistical evidence and develop an estimate from historical data. |
URI: | http://hdl.handle.net/2003/4904 http://dx.doi.org/10.17877/DE290R-15021 |
Issue Date: | 2004 |
Provenance: | Universitätsbibliothek Dortmund |
Appears in Collections: | Sonderforschungsbereich (SFB) 475 |
Files in This Item:
File | Description | Size | Format | |
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tr33-04.pdf | DNB | 218.4 kB | Adobe PDF | View/Open |
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