QUESTION1 ANSWER. ALL PARTS The following Ordinary Least Squares (LS) regression model has been produced to calculate the foss given default on an instrument for corporate firms Model: LGD A Constant 0.196 0.104 DER 0.029 0.014 Leverage GDP growth 0156 0.068 0.062 0.155 Coefficient Standard error of the coefficient p-value 0.00 0.00 0.00 012 0.00 Where:I_DEF is the default rate observed in the previous year LGD_A is the average LGD of instruments with the same type as the firm Leverage is given by Total Dett/Total Assets GDP growth is the most recent economic growth figures The Rp for this model is 68% and the Root Mean Squared Errors RMSE) * 0.27 The insignificant Laverage factories removed from Model A and the following lopt models produced Model Constant 0.192 0.109 DEF 0.032 0.018 LGD A 0.529 0.144 Tangbility GDP growth 0.171 0.156 0.09 0.02 Coefficient Standard error of the coefficient D-value 0.00 0.00 0.00 0.00 Where: Tangibility is given by (property, plant, equipments/Total assets The R' for this model is 73% and the Root Mean Squared Errors (RMSE) 65 0265 CONTINUES ON NEXT PAGE QUESTION 1 CONTINUED a Explain the overall fe of the models and how well they predictions given dett. 20% question weight) b Describe the impact of each factor en los ven default Discuss the rationale for the Inclusion of the different factors in the models and their expected relationship with loss given default (SOX question weight) 6. Calculate the t-ratio for each factor in Model A and Model B. (20% question wege QUESTION 1 ANSWER ALL PARTS The following Ordinary Least Squares (OLS) regression model has been produced to calculate the loss given default on an instrument for corporate firms. Model A: Constant 0.196 1_DEF 0.029 0.014 LGD_A 0.506 0.155 Leverage GDP growth 0.183 -0.156 0.068 0.062 Coefficient Standard error of the coefficient p-value 0.104 0.00 0.00 0.00 0.12 0.00 Where: I_DEF is the default rate observed in the previous year LGD_A is the average LGD of instruments with the same type as the firm Leverage is given by Total Debt / Total Assets GDP growth is the most recent economic growth figures The R for this model is 68% and the Root Mean Squared Errors (RMSE) is 0.279. The insignificant Leverage factories removed from Model A and the following logit model is produced QUESTION1 ANSWER. ALL PARTS The following Ordinary Least Squares (LS) regression model has been produced to calculate the foss given default on an instrument for corporate firms Model: LGD A Constant 0.196 0.104 DER 0.029 0.014 Leverage GDP growth 0156 0.068 0.062 0.155 Coefficient Standard error of the coefficient p-value 0.00 0.00 0.00 012 0.00 Where:I_DEF is the default rate observed in the previous year LGD_A is the average LGD of instruments with the same type as the firm Leverage is given by Total Dett/Total Assets GDP growth is the most recent economic growth figures The Rp for this model is 68% and the Root Mean Squared Errors RMSE) * 0.27 The insignificant Laverage factories removed from Model A and the following lopt models produced Model Constant 0.192 0.109 DEF 0.032 0.018 LGD A 0.529 0.144 Tangbility GDP growth 0.171 0.156 0.09 0.02 Coefficient Standard error of the coefficient D-value 0.00 0.00 0.00 0.00 Where: Tangibility is given by (property, plant, equipments/Total assets The R' for this model is 73% and the Root Mean Squared Errors (RMSE) 65 0265 CONTINUES ON NEXT PAGE QUESTION 1 CONTINUED a Explain the overall fe of the models and how well they predictions given dett. 20% question weight) b Describe the impact of each factor en los ven default Discuss the rationale for the Inclusion of the different factors in the models and their expected relationship with loss given default (SOX question weight) 6. Calculate the t-ratio for each factor in Model A and Model B. (20% question wege QUESTION 1 ANSWER ALL PARTS The following Ordinary Least Squares (OLS) regression model has been produced to calculate the loss given default on an instrument for corporate firms. Model A: Constant 0.196 1_DEF 0.029 0.014 LGD_A 0.506 0.155 Leverage GDP growth 0.183 -0.156 0.068 0.062 Coefficient Standard error of the coefficient p-value 0.104 0.00 0.00 0.00 0.12 0.00 Where: I_DEF is the default rate observed in the previous year LGD_A is the average LGD of instruments with the same type as the firm Leverage is given by Total Debt / Total Assets GDP growth is the most recent economic growth figures The R for this model is 68% and the Root Mean Squared Errors (RMSE) is 0.279. The insignificant Leverage factories removed from Model A and the following logit model is produced
