Universität zu Köln

Orth, Walter (2013). Default probability estimation in small samples-with an application to sovereign bonds. Quant. Financ., 13 (12). S. 1891 - 1903. ABINGDON: ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD. ISSN 1469-7696

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Abstract

In small samples and especially in the case of small true default probabilities, standard approaches to credit default probability estimation have certain drawbacks. Most importantly, standard estimators display high variability and tend to underestimate the true default probability, which are clearly undesirable properties from the perspective of prudent risk management. As an alternative, we present an empirical Bayes approach to default probability estimation and apply the estimatorwhich is capable of multi-period predictionsto a comprehensive sample of Standard & Poor's rated sovereign bonds. By means of a simulation study, we then show that the empirical Bayes estimator is more conservative and more precise under realistic data-generating processes.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Orth, Walter UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-470754
DOI:	10.1080/14697688.2013.792436
Journal or Publication Title:	Quant. Financ.
Volume:	13
Number:	12
Page Range:	S. 1891 - 1903
Date:	2013
Publisher:	ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Place of Publication:	ABINGDON
ISSN:	1469-7696
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language Business, Finance; Economics; Mathematics, Interdisciplinary Applications; Social Sciences, Mathematical Methods Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/47075