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# Questions tagged [default-probability]

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### Quantitative and regulatory aspects of portfolio integration in IRB credit portfolios

Say bank A buys a credit portfolio "B" (e.g. corporate loans or retail mortgage, ...) from bank B. Bank A fulfills the the requirements of CRR (capital requirement regulation) for its existing ...
112 views

### Is it possible to sell protection on own asset with CDS?

Is it possible for a company to sell protection on their own assets or own country bonds by CDS? The company can buy protection on those assets, but how about selling? I suppose it can not sell. Is ...
81 views

### PD validation in the low/no default setting

The topic of this question is the validation as prescribed in the Basel N ($N \ge 2$) framework. The task is given the probability of default $p_k$ for $K$ rating classes at time $t$ and the outcome ...
699 views

### Conversion between physical and risk-neutral default probabilities

In the simple Merton structural credit risk model, the physical default probability is given by: $$DD_p = \frac{\ln(A / D) + (\mu -0.5\sigma^2)T}{\sigma \sqrt{T}}$$ $$P=N(-DD_p)$$ Assuming that ...
63k views

### How to compute the implied probability of default from a CDS spread?

I have two tasks: Given country's CDS spread draw implied probability of default. Given probability of default calculate CDS spread. If possible, refer to any papers.
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### What relevance might the Modigliani-Miller theorem have for weight of evidence?

Suppose in computing weight of evidence based on financial ratios of some bank, one finds that their debt ratio and equity ratio have largely (you pick how large I guess) differing weights of evidence....
67 views

### Problem of PD estimation [closed]

Why is small number of defaults is a problem in case of PD estimation? What are the consequences? Can you recommend notes, books, etc about the topic?
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### Portfolio diversification on default risk

A portfolio of 13 different companies have loans. Company $i$ default on their loan with probability $p_i$ and survive with prob $q_i=1-p_i$. Let $Y_i=1$ denote default. Question: How could I get to a ...
177 views

### LGD/PD Databases

I am trying to compare LGD/PD for Banks and other financial institutions using different approach thank Merton. Are there any publicly available data on which I can build? Thanks.
3k views

### Interest rate implied probability of default

Is there an equation or rule of thumb to determine the probility of default for a loan with a specific interest rate? Let's say, a bank offers a company a loan with an interest rate of 6%, by which ...
77 views

### How exactly are correlated defaults used/analyzed?

I've read a lot about correlate defaults but I can't seem to understand how they're used practically in a portfolio theory setting. Suppose I have two (?) companies, X and Y, and historic default ...
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### What is the probability of defaulting in year 2?

I was asked this question the other day, but it's been years since I've done this work. If the probability of a company to default in a year is $8\%$, what is the probability that it will default in ...
48 views

### Using Put Volatilities to Estimate Firm Leverage/Credit Risk

This paper by Hull, Nelken and White uses implied volatilities in structural credit risk models to back out a market-implied leverage ratio. CreditGrades has a similar implementation using equity ...