Debt correlations in the wake of the financial crisis: What are appropriate default correlations for structured products?

• 成果类型: Article
• 署名作者: Nickerson, Jordan; Griffin, John M.
• 署名单位: Boston College; University of Texas System; University of Texas Austin
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2017.06.011
• 发表日期: 2017
• 页码: 454-474
• 关键词: credit ratings; financial crises; Structured finance; Default correlations

摘要

This paper proposes several frameworks to estimate the appropriate default correlations for structured products, each of which jointly considers the role of co-movements in modeled risk characteristics and unmodeled systematic risk, or 'frailty.' We contrast our estimates with credit rating agencies' default correlation assumptions, which were only 0.01 for Collateralized Loan Obligations (CLOs) pre-crisis and have increased to 0.03 post-crisis. In contrast, the joint consideration of observable risk factors and frailty leads to substantially higher estimates of 0.12. We show that this translates into CLOs with credit risk understated by 26%, suggesting caution for the post-crisis structured finance market. (c) 2017 Elsevier B.V. All rights reserved.