NCTAM papers, National Congress of Theoretical and Applied Mechanics, Japan
The 58th Japan National Congress for Theoretical and Applied Mechanics
Session ID : 2D17
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OS19
Recovery Process Model for Two Companies: Delays and Common Shocks
*Yuki Itoh
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Abstract
The quantification of the recovery rate for the debt of the defaulted small company is one of the most important problems for banks and their supervisors. However the data of the real recovery rates is seldom available for academic study. Therefore there have been a few studies for the recovery rate for the debt.
The recovery process model for single company is introduced by Itoh(2008). In this paper, we extend the model of Itoh(2008) to two defaulted companies, and we model the recovery processes by the inhomogeneous bivariate compound Poisson process with the delays.
We derive the correlation of the recovery rates of two defaulted debts, and the expected value and the standard deviation of the recovery rate for the defaulted debt portfolio. We also present two methods based on the Vernic recursion formula and the Monte Calro simulation for calculating the probability distribution function of the recovery process, and illustrate several numerical results.
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© 2009 Japan Society of Civil Engineers
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