Incorporating Systematic Risk in Recovery : Theory and Evidence Modeling Methodology

@inproceedings{Hu2007IncorporatingSR,
  title={Incorporating Systematic Risk in Recovery : Theory and Evidence Modeling Methodology},
  author={Zhenya Hu},
  year={2007}
}
  • Zhenya Hu
  • Published 2007
This paper proposes a theoretical framework to account for systematic risk in recovery and to address the correlation between the firm’s underlying asset process and recovery. Under the proposed framework, the expected value in default under the risk neutral measure can be expressed as a linear function of the expected value under the physical measure. This allows for a simple mapping between expected recovery observed in the data and a measure that can be applied when using risk neutral… CONTINUE READING