This study provides a theoretical and empirical analysis of five alternative discount rate concepts for computing LGDs using GCD Data. Appropriate discount rates are based on a combination of the risk free rate and risk premium for systematic risk at the time of default. Approaches may be separated into contract specific, comparable and equilibrium approaches. Advantages and shortcomings are discussed in the paper.
The working group was chaired by Stephan Jortzik of ANZ and assisted by Harald Scheule, Associate Professor of Finance at the University of Technology, Sydney.
