Abstract
This paper provides estimators for the default probability and default correlation for a portfolio of obligors. Analogously to rating classes, homogeneous groups of obligors are considered. The estimations are made in a general Bernoulli mixture model with a minimum of assumptions and in a single-factor model. The first case is treated with linear distribution-free estimators and the second case with the maximum-likelihood method. All problems are viewed from different points of origin to address a variety of practical questions.
For further reading on the estimation methods of the rating agencies see Carty (1997), Kavvathas (2000).
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Huschens, S., Vogl, K., Wania, R. (2005). Estimation of Default Probabilities and Default Correlations. In: Frenkel, M., Rudolf, M., Hommel, U. (eds) Risk Management. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-26993-2_12
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DOI: https://doi.org/10.1007/3-540-26993-2_12
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