# Default Correlation

From Open Risk Manual

## Contents

## Definition

**Default Correlation** denotes a measure of Default Dependency between different borrowers when considered as part of a Credit Portfolio. It measures the likelihood of Joint Default within the period of consideration.

## Formula

### Generic Default Correlation

The general formula for default correlation between two obligors is linking to the Joint Default probability:

where are is the Probability of Default of each obligor

## From Default Rate Volatility

Given an estimate of Default Rate Volatility for a homogeneous credit portfolio, the average default correlation is^{[1]}

## See Also

## References

- ↑ Credit Metrics Technical Document, 1997