Implied market loss given default: Structural-model approach

Arbeitspapier

This paper focuses on the key credit risk parameter Loss Given Default (LGD). We describe its general properties and determinants with respect to seniority of debt, characteristics of debtors or macroeconomic conditions. Further, we illustrate how the LGD can be extracted from market observable information with help of the adjusted Mertonian structural approach. We present a derivation of the formula for expected LGD and show its sensitivity analysis with respect to other structural parameters of the company. Finally, we estimate the 5-year expected LGDs for companies listed on Prague Stock Exchange and find out, that the average LGD for this analyzed sample is around 20%. To the author's best knowledge, those are the first implied market estimates of LGD in the Czech Republic.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IES Working Paper ; No. 26/2008

Classification and Topics

• Classification: Wirtschaft ; Mathematical Methods ; Contingent Pricing; Futures Pricing; option pricing ; Bankruptcy; Liquidation
• Subject: loss given default ; credit risk ; structural models ; Kreditrisiko ; Kreditgeschäft ; Risikomanagement ; Tschechische Republik

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Seidler, Jakub
• Event: Veröffentlichung
• (who): Charles University in Prague, Institute of Economic Studies (IES)
• (where): Prague
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/83455
• Last update: 10.03.2025, 11:42 AM CET