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| Author: | Jarrow, R. |
| Title: | Default parameter estimation using market prices |
| Journal: | Financial Analysts' Journal
2001 : SEP/OCT, VOL. 57:5, p. 75-92 |
| Index terms: | DEFAULTS ESTIMATION PRICES |
| Freeterms: | RECOVERY RATES |
| Language: | eng |
| Abstract: | This article presents a new methodology for estimating recovery rates and the (pseudo) default probabilities implicit in both debt and equity prices. In this methodology, recovery rates and default probabilities are correlated and depend on the state of the macroeconomy. This approach makes two contributions: First, the methodology explicitly incorporates equity prices in the estimation procedure. Second, the methodology explicitly incorporates a liquidity premium in the estimation procedure. |
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