Skip to content

Bonds with the same credit rating have ____ probability of default but ____ severity of loss given default.

May 27, 2017

Bonds with the same credit rating have approximately the same probability of default but not necessarily the same severity of loss given default.

Remember credit ratings are ordinal rankings and do not adjust quickly to changes in business cycle. This extra stability lowers the correlation with default probabilities.

Advertisements

From → Asset Valuation

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: