Recovery Risk
From Open Risk Manual
Definition
Recovery Risk denotes the risk that following a Default Event, contracts of the defaulting entity cannot be honoured in full, thereby leading to financial loss to the lender or other counterparty. Recovery risk is the complement of LGD Risk
See Also
Issues and Challenges
- Large Corporates and sovereigns are diversified entities with sufficient financial means, this imply that default events are actually fairly rare. This paucity of data makes the prediction of possible recoveries in case of default rather challenging. This is denoted as the Low Default Portfolios problem
