Credit Risk [17]

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Bullet points include: If default occurs before horizon, assume that debt holders receive random fraction g of value of the default free equivalent claim, so contribution to value (for cash flow ci) post default is: Recovery rate gamma might be assumed to be beta-distributed: Here B(.) is beta function, perhaps p and q chosen to match mean and volatility of recoveries observed from data, perhaps mean(g) = 0.5, sd(g) = 0.23

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