We conduct a thorough analysis on the role played by the unobserved systematic risk factor in default prediction. We find that this latent factor outweighs the observed systematic risk factors and can substantially improve the in-sample predictive accuracy at the firm, rating group, and...

This paper studies loss given default using a large set of historical loan-level default and recovery data of high loan-to-value residential mortgages from several private mortgage insurance companies. We show that loss given default can largely be explained by various characteristics associated...