Difference between revisions of "Recovery Risk"

From Open Risk Manual
 
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== Issues and Challenges ==   
 
== 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
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* [[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
  
 
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[[Category:LGD Models]]
 
[[Category:LGD Models]]

Latest revision as of 17:47, 11 October 2019

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 synonymous to Loss Given Default

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

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