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Michael Jacobs, Jr.
Michael Jacobs, Jr.

Structural model for loss-given-default, derive compound option formulae , and calibrate to moody\'s defaulted bonds and loans.

1 de 26
An Option Theoretic Model for Ultimate Loss-Given-Default with Systematic Recovery Risk and Stochastic Returns on Defaulted Debt Michael Jacobs, Ph.D., CFA Senior Financial Economist Credit Risk Analysis Division Office of the Comptroller of the Currency October, 2010 The views expressed herein are those of the author and do not necessarily represent the views of the Office of the Comptroller of the Currency or the Department of the Treasury.
Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Background and Motivation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Introduction and Conclusions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Review of the Literature ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Theoretical Framework ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Theoretical Framework (continued) ,[object Object],[object Object],[object Object],[object Object]
Theoretical Framework (continued) ,[object Object],[object Object],[object Object]
Theoretical Framework (continued) ,[object Object],[object Object]
Theoretical Framework (continued) ,[object Object],[object Object],[object Object]
Comparative Statics ,[object Object],[object Object]
Comparative Statics (continued) ,[object Object],[object Object]
Empirical Methodology: Calibration of Models ,[object Object],[object Object],[object Object],[object Object]
Empirical Methodology: Calibration of Models (continued) ,[object Object],[object Object],[object Object]
Empirical Results: Data Description ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Empirical Results: Summary by Instrument & Default Event Type ,[object Object],[object Object],[object Object]
Empirical Results: Summary by Seniority Class & Collateral Group ,[object Object],[object Object],[object Object]
Empirical Results: FIML Estimates ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Empirical Results: FIML Estimates (continued)
Downturn LGD ,[object Object],[object Object]
Model Validation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Model Validation (continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Model Validation (continued)
Model Validation (concluded) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Summary of Contributions and Major Findings ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Summary of Contributions and Major Findings (continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Lgd Model Jacobs 10 10 V2[1]

  • 1. An Option Theoretic Model for Ultimate Loss-Given-Default with Systematic Recovery Risk and Stochastic Returns on Defaulted Debt Michael Jacobs, Ph.D., CFA Senior Financial Economist Credit Risk Analysis Division Office of the Comptroller of the Currency October, 2010 The views expressed herein are those of the author and do not necessarily represent the views of the Office of the Comptroller of the Currency or the Department of the Treasury.
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Notas do Editor

  1. LGD @ default approach does not address the discount ate question – “implicit discounting”
  2. Broad definition of default (“quasi-Basel” according to Moody’s) Exceptions: trade payables & other off-balance sheet obligations debt type, seniority ranking, debt above / below, collateral type Obligor / Capital Structure: industry, proportion bank / secured debt, number of creditor classes / number instruments Defaults: amounts (EAD, AI), default type, coupon, dates / durations Recovery / LGD measures: prices of pre-petition (or received in settlement) instruments at emergence or restructuring Sub-set: prices of traded debt at around default (30-45 day avg.)
  3. Many OC’s had restructuring dates very near or after default trading dates